-----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, TMqEmGpGbRei6Om4b9gI6SNBEDqD1pBRy/tdJsOP7dVlAURR/jtl0z25U5CIktir aJAC1jsKsbeix+6x+lKCgQ== 0000891804-06-001565.txt : 20060501 0000891804-06-001565.hdr.sgml : 20060501 20060428191537 ACCESSION NUMBER: 0000891804-06-001565 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20060501 DATE AS OF CHANGE: 20060428 EFFECTIVENESS DATE: 20060501 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-34223 FILM NUMBER: 06791882 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: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01829 FILM NUMBER: 06791883 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 0000002110 S000009184 Columbia Acorn Fund C000024954 Columbia Acorn Fund Class A LACAX C000024955 Columbia Acorn Fund Class B LACBX C000024956 Columbia Acorn Fund Class C LIACX C000024957 Columbia Acorn Fund Class Z ACRNX 0000002110 S000009185 Columbia Acorn International C000024958 Columbia Acorn International Class A LAIAX C000024959 Columbia Acorn International Class B LIABX C000024960 Columbia Acorn International Class C LAICX C000024961 Columbia Acorn International Class Z ACINX 0000002110 S000009186 Columbia Acorn USA C000024962 Columbia Acorn USA Class A LAUAX C000024963 Columbia Acorn USA Class B LAUBX C000024964 Columbia Acorn USA Class C LAUCX C000024965 Columbia Acorn USA Class Z AUSAX 0000002110 S000009187 Columbia Acorn Select C000024966 Columbia Acorn Select Class A LTFAX C000024967 Columbia Acorn Select Class B LTFBX C000024968 Columbia Acorn Select Class C LTFCX C000024969 Columbia Acorn Select Class Z ACTWX 0000002110 S000009188 Columbia Acorn International Select C000024970 Columbia Acorn International Select Class A LAFAX C000024971 Columbia Acorn International Select Class B LFFBX C000024972 Columbia Acorn International Select Class C LFFCX C000024973 Columbia Acorn International Select Class Z ACFFX 0000002110 S000009189 Columbia Thermostat Fund C000024974 Columbia Thermostat Fund Class A CTFAX C000024975 Columbia Thermostat Fund Class B CTFBX C000024976 Columbia Thermostat Fund Class C CTFDX C000024977 Columbia Thermostat Fund Class Z COTZX 485BPOS 1 file002.txt COLUMBIA ACORN TRUST As filed with the Securities and Exchange Commission on May 1, 2006 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. 79 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 54 ------------------------------ COLUMBIA ACORN TRUST 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 ------------------------------
Charles P. McQuaid Michelle Rhee Cameron S. Avery Columbia Acorn Trust Columbia Management Group, LLC 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) [X] on May 1, 2006 pursuant to rule 485(b) [ ] 60 days after filing pursuant to rule 485(a)(1) [ ] on __________ 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, 2006 - -------------------------------------------------------------------------------- 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 (Commissions) ............................................... 10 How to Exchange Shares .................................................... 10 How to Sell Shares ........................................................ 10 Fund Policy on Trading of Fund Shares ..................................... 11 Financial Intermediary Payments ........................................... 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 - -------------------------------------------------------------------------------- APPENDIX .................................................................. 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 Fund ("Acorn Fund") seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- 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 investment 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 United States in developed markets (for example, Japan, Canada and the 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) 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 is inherent in the Fund's investment strategy. 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 large portion of its assets invested in a particular sector. FOREIGN SECURITIES are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in EMERGING MARKETS are 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 team 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. 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. - -------------------------------------------------------------------------------- CALENDAR YEAR TOTAL RETURNS (CLASS Z) - --------------------------------------------------------------------------------
22.55% 24.98% 6.02% 33.38% 10.06% 6.14% -13.31% 45.68% 21.51% 13.11% - -------------------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 For period shown in bar chart: Best quarter: 4th quarter 1999, +21.94% Worst quarter: 3rd quarter 1998, -19.51%
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, 2005 - --------------------------------------------------------------------------------
SHARE CLASS 1 YEAR 5 YEARS 10 YEARS Class Z (%) Return Before Taxes 13.11 13.00 15.95 Return After Taxes on Distributions 12.11 12.56 14.11 Return After Taxes on Distributions and Sale of Fund Shares 9.81 11.31 13.33 - ------------------------------------------------------------------------------------------------- INDICES Russell 2500 (%) 8.11 9.14 11.53 - ------------------------------------------------------------------------------------------------- S&P 500 Index (%) 4.91 0.54 9.07 - ------------------------------------------------------------------------------------------------- Russell 2000 (R) (%) 4.55 8.22 9.26 - -------------------------------------------------------------------------------------------------
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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. 5 THE FUND
- -------------------------------------------------------------------------------------------------------- SHAREHOLDER FEES (1) (COMMISSIONS 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. - -------------------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS) - -------------------------------------------------------------------------------------------------------- Management fees (1) (%) 0.64 - -------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------------------------------- Other expenses (2) (%) 0.11 - -------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (2) (%) 0.75 - --------------------------------------------------------------------------------------------------------
(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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses would be 0.74%. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. 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 + For example only since the minimum initial investment in the Fund is $75,000, subject to certain exceptions described in the section "Eligible Investors" beginning on page 8. - -------------------------------------------------------------------------------- EXAMPLE EXPENSES FOR A $10,000 INVESTMENT (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 See the Appendix for additional hypothetical investment and expense information. 6 YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described on page 8), 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 Management 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 Management Distributors, 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 (new account) Management 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 to Columbia Management 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 Management Distributors, Inc. for shares of the same class or Class A of the Fund at no additional cost. There may be an additional sales 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 funds transfer to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. Automatic You may make monthly or quarterly investments ($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 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 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 diversification of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. 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 Fund 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 with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any 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 a broker-dealer, bank, third-party administrator or other financial institution (each commonly referred to as 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. You may be asked to provide information, including account statements and other records, regarding your eligibility. 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 group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; or o Any investor purchasing through a Columbia Management Group, LLC state tuition plan organized under Section 529 of the Internal Revenue Code. $75,000 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 Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD; o Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD (other than the Columbia Acorn Funds); 8 YOUR ACCOUNT o Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary (other than Columbia Wanger Asset Management L.P.); o Any investor participating in an account offered by an intermediary or other entity that provides services to such an 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 agent (each investor purchasing through an intermediary must independently satisfy the $75,000 minimum investment requirement); o Any client of Bank of America Corporation or a subsidiary purchasing through an asset management company, trust, fiduciary, 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; o Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an ACCREDITED INVESTOR, as defined under the Securities Act of 1933; or o Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. 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; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. 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. 9 YOUR ACCOUNT SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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 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. 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 CMD 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 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 - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" 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. 10 YOUR ACCOUNT 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- 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 financial advisor 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 Class Z shares or Class A shares (only if Class Z is not offered) of another fund distributed by Columbia Management Distributors, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - ---------------------------------------------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or percentage of your account on a monthly, withdrawal plan quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance has been waived for wrap accounts. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - ---------------------------------------------------------------------------------------------------------------------- By electronic funds You may sell shares of the Fund and request that the proceeds be electronically transferred to transfer 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 11 YOUR ACCOUNT 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 12 YOUR ACCOUNT FINANCIAL INTERMEDIARY PAYMENTS - -------------------------------------------------------------------------------- The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.40% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. 13 YOUR ACCOUNT OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's Class Z share price 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 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 the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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 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 any 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. 14 YOUR ACCOUNT 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, 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. 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. 15 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.64% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a team to assist the 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 also manages two domestic separate accounts and two offshore funds. He is also president of Wanger Advisors Trust. The Statement of Additional Information 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. fund of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is also 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. 17 MANAGING THE FUND LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 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 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 PRICE THAT IT SUPERIOR PERFORMANCE THAT IS OBJECTIVES AND IS IMPORTANT TO MAINTAINING BELIEVES WOULD ALSO MAKE THE STOCK A SUSTAINABLE OVER TIME. A COMPETITIVE ADVANTAGE. 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, options, straddles or similar transactions, 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 for the years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- COLUMBIA ACORN FUND - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 Class Z Class Z Class Z Class Z Class Z ------- ------- ------- ------- ------- NET ASSET VALUE -- BEGINNING OF PERIOD ($) 26.45 22.56 15.50 17.88 17.21 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS ($): Net investment income (a) 0.15 0.04 0.03 0.02 0.05 Net realized and unrealized gain (loss) 3.28 4.78 7.05 (2.40) 1.01 - ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.43 4.82 7.08 (2.38) 1.06 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.15) (0.02) -- -- (0.04) From net realized gains (1.56) (0.91) (0.02) -- (0.35) - ----------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.71) (0.93) (0.02) -- (0.39) - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD ($) 28.17 26.45 22.56 15.50 17.88 - ----------------------------------------------------------------------------------------------------------------- Total return (%) (b) 13.11 (c) 21.51 (c) 45.68 (13.31) 6.14 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses (d) 0.74 0.81 0.80 0.82 0.82 Net investment income (d) 0.57 0.18 0.17 0.15 0.28 Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 16 20 10 13 20 Net assets at end of period (in millions)($) 10,399 8,689 7,065 4,022 4,220
(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 Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 21 APPENDIX HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The table shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The table also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the table, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. As noted previously, the Fund's minimum investment for initial purchases or exchanges is $75,000. - -------------------------------------------------------------------------------- COLUMBIA ACORN FUND -- CLASS Z SHARES - --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT ASSUMED RATE OF RETURN AMOUNT 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) ---- --------------- ----- --------------- --------------- ------------ 1 5.00% 0.75% 4.25% $10,425.00 $76.59 2 10.25% 0.75% 8.68% $10,868.06 $79.85 3 15.76% 0.75% 13.30% $11,329.96 $83.24 4 21.55% 0.75% 18.11% $11,811.48 $86.78 5 27.63% 0.75% 23.13% $12,313.47 $90.47 6 34.01% 0.75% 28.37% $12,836.79 $94.31 7 40.71% 0.75% 33.82% $13,382.35 $98.32 8 47.75% 0.75% 39.51% $13,951.10 $102.50 9 55.13% 0.75% 45.44% $14,544.02 $106.86 10 62.89% 0.75% 51.62% $15,162.14 $111.40 TOTAL GAIN AFTER FEES AND EXPENSES $5,162.14 TOTAL ANNUAL FEES AND EXPENSES $930.32
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 22 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn Fund - -------------------------------------------------------------------------------- [LOGO] COLUMBIAFUNDS A MEMBER OF COLUMBIA MANAGEMENT (C) 2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.426.3750 WWW.COLUMBIAFUNDS.COM INT-36/109492-0306 Columbia Acorn Fund Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 Commissions and Other Expenses ........................... 6 YOUR ACCOUNT 8 - --------------------------------------------------------------- Choosing a Share Class ................................... 8 How to Buy Shares ........................................ 8 Investment Minimums ...................................... 9 Sales Charges (Commissions) .............................. 10 How to Exchange Shares ................................... 15 How to Sell Shares ....................................... 15 Fund Policy on Trading of Fund Shares .................... 16 Other Information About Your Account. .................... 18 BOARD OF TRUSTEES 20 - --------------------------------------------------------------- MANAGING THE FUND 20 - --------------------------------------------------------------- Investment Adviser ....................................... 20 Portfolio Managers ....................................... 21 Legal Proceedings ........................................ 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 - --------------------------------------------------------------- The Information Edge ..................................... 23 Long-Term Investing ...................................... 23 Derivative Strategies .................................... 24 Temporary Defensive Strategies ........................... 24 FINANCIAL HIGHLIGHTS 25 - --------------------------------------------------------------- APPENDIX 28 - --------------------------------------------------------------- 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 ("Acorn Fund") seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- 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. 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. 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 United States in developed markets (for example, Japan, Canada and the 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 is inherent in the Fund's investment strategy. 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 large portion of its assets invested in a particular sector. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in emerging markets are 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 team 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. 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, five years and the life of the share class. 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 Class commenced operations. They include the effects of Fund expenses, but not the effects of sales charges paid directly by a shareholder. 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, five years and the life of the share class. 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 (Commissions)." 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 1996 -- 1997 -- 1998 -- 1999 -- 2000 -- 2001 5.56% 2002 -13.82% 2003 44.85% 2004 21.05% 2005 12.76% 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, 2005(1) - --------------------------------------------------------------------------------
Life of the Share Class 1 Year 5 Years Share Class(2) Class A (%) Return Before Taxes 6.28 11.13 12.17 Return After Taxes on Distributions 5.36 10.73 11.28 Return After Taxes on Distributions and Sale of Fund Shares 5.27 9.66 10.31 - ----------------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes 6.98 11.45 12.58 Return After Taxes on Distributions 6.02 11.03 11.68 Return After Taxes on Distributions and Sale of Fund Shares 5.78 9.94 10.68 - ----------------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 10.90 11.68 12.68 Return After Taxes on Distributions 9.94 11.27 11.78 Return After Taxes on Distributions and Sale of Fund Shares 8.33 10.15 10.76 - ----------------------------------------------------------------------------------------------------- Indices Russell 2500 (%) 8.11 9.14 9.43(3) - ----------------------------------------------------------------------------------------------------- S&P 500 Index (%) 4.91 0.54 -0.19(3) - ----------------------------------------------------------------------------------------------------- Russell 2000(R) (%) 4.55 8.22 8.07(3)
(1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the Investment Adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) The inception date for Class A, Class B and Class C shares is October 16, 2000. (3) Performance information is from October 16, 2000. 5 The Fund COMMISSIONS AND OTHER EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the commissions and other expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges (Commissions) are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor, who compensates your financial advisor. 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, 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 will likely, incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shareholder Fees(1) (commissions 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 12 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) (%) 0.64 0.64 0.64 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - -------------------------------------------------------------------------------- Other expenses(2) (%) 0.15 0.24 0.19 - -------------------------------------------------------------------------------- Total annual fund operating expenses(2) (%) 1.04 1.73 1.83 (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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses for Classes A, B and C would be 1.03%, 1.72% and 1.82%, respectively. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. - -------------------------------------------------------------------------------- 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 + For example only, since the minimum initial investment in the Fund is $75,000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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: $675 $887 $1,116 $1,773 - -------------------------------------------------------------------------------- Class B: did not sell your shares $176 $545 $ 939 $1,858 sold all your shares at the end of the period $676 $845 $1,139 $1,858 - -------------------------------------------------------------------------------- Class C: did not sell your shares $186 $576 $ 990 $2,148 sold all your shares at the end of the period $286 $576 $ 990 $2,148 See the Appendix for additional hypothetical investment and expense information. 7 Your Account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers multiple classes of shares. This prospectus offers shares of three classes - Class A, Class B and Class C. Each of those share classes has its own commission and expense structure that affects the investment return of that class. Determining which share class is best for you depends on various factors, including the amount you are investing, how long you expect to hold your investment and your personal situation. You should consult with your financial advisor before deciding which share class is most appropriate for you. The following considerations should be part of your assessment: o You will pay a commission if you buy Class A, B or C shares, either at the time of investment or redemption, or through ongoing distribution commission payments ("Rule 12b-1 fees") made from your investment over time, or both. o Class A shares require an up-front commission payment, but pay lower ongoing Rule 12b-1 fees than Class B and Class C shares. Class B and Class C shares have no up-front commission paid by the shareholder but pay higher ongoing commissions (Rule 12b-1 fees), and a deferred commission is imposed on a redemption of Class B shares within six years after purchase. The differential between classes will vary depending on the actual investment return for any given period. o Class A shares are generally more advantageous to an investor who intends to hold the shares for several years and invests an amount large enough to qualify for a reduced rate of initial sales commission, taking into account commissions you may pay when redeeming shares of other classes. Class A shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.25% of the average value of the shares. o Class B shares are no longer offered to new investors. A Class B shareholder of the Fund whose account has a value of less than $50,000 (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares) may purchase additional Class B shares of the Fund to increase the account value up to a maximum of $49,999; any additional investment by the shareholder in that Fund will be invested in Class A shares of the Fund, without regard to the normal investment minimum for Class A shares, but will be subject to the applicable Class A shares up-front commission. Class B shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.85% of the average value of the shares and automatically convert to Class A shares after eight years. o Class C shares are generally more advantageous to an investor who intends to hold shares for only a few years. Class C shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 1.00% of the average value of the shares. o If you invest $1 million or more you can purchase Class A shares but not Class C shares. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other eligible investors. Class Z shares are offered by a separate prospectus. HOW TO BUY SHARES - -------------------------------------------------------------------------------- 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 8 Your Account 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 - -------------------------------------------------------------------------------- The investment minimum for initial investments (by purchase, exchange or certain transfers) of Class A, B and C shares is $75,000. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. 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. Please see the Statement of Additional Information for more details on investment minimums. - -------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -------------------------------------------------------------------------------- Method Instructions Through your financial Your financial advisor can help you establish advisor your account and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check (new account) For new accounts, send a completed application and check made payable to the Fund to the transfer agent, Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check (existing account) For existing accounts, fill out and return the additional investment stub included in your account statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, 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 sales charge if exchanging from a money market fund. An exchange to another fund may incur a sales charge if the original purchase was not assessed a sales charge. 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 transfer You may purchase shares of the Fund by electronically transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic investment plan You may make monthly or quarterly investments ($50 minimum) automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar cost You may purchase shares of the Fund for your averaging account by exchanging $100 or more each 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 diversification You may automatically invest dividends distributed by another fund into the same class of share (and, in some cases, certain other classes) of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your dividends in the Fund, call 1-800-345-6611. 9 Your Account SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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. 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 sales and marketing fees (commissions) 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. The annual fee, as a percentage of the value of the shares, is normally equal up to 0.25% for Class A, 0.85% for Class B and 1.00% for Class C shares. These fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the Rule 12b-1 fee thereafter. Financial Intermediary Payments The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. 10 Your Account You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. Class A shares Your purchases of Class A shares are made at the public offering price. 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 $75,000 or more in Class A shares of the Fund will not be subject to a sales charge. ** Initial purchases of less than $75,000 are no longer accepted. However, for accounts opened prior to February 3, 2006, subsequent investments that do not meet the Fund's current investment minimum will be accepted. 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 it distributes. Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-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. 11 Your Account For Class A share purchases of $1 million or more by certain group retirement plans, 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 $50 million 0.50 - -------------------------------------------------------------------------------- $50 million or more 0.25 For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million. - -------------------------------------------------------------------------------- UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (COMMISSIONS) 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 (Commissions) 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. 12 Your Account 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. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend 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 advisor's 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 Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into other Columbia Funds, as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. 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, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. 13 Your Account Class B shares Your purchases of Class B shares are at Class B's net asset value. No new Class B share accounts may be established in the Fund. However, Class B share accounts established prior to February 3, 2006 may nonetheless purchase additional Class B shares, so long as those purchases do not result in the account holding $50,000 or more of Class B shares (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares). In the event that an existing Class B shareholder seeks to add funds to such an account in excess of $49,999, the amount in excess may be invested in Class A shares without the imposition of the minimum investment requirement for Class A shares. Such purchases of Class A shares will be subject to the applicable sales load imposed on such purchases. See "Class A Sales Charges" on page 11. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold within six years of purchase. The CDSC declines over the six years and disappears in the seventh year. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart 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 $50,000(1): - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(2) 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 (1) Only applicable to accounts opened prior to February 3, 2006. (2) Applied to the net asset value at the time of purchase or sale, whichever is lower. Up-front commission to financial advisors is 4.00% and is paid by the distributor. In addition, from the annual fee of 0.85% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, the distributor receives 0.60% of the value of the shares for each of the first eight years, or an aggregate 4.80% over eight years, which will offset the commission it paid to your financial advisor. Your financial advisor is paid the remaining 0.25% as an ongoing commission for the life of your investment. The conversion of Class B shares to Class A shares occurs automatically eight years after purchase. 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 your purchase of Class C shares, for which the distributor is repaid from the ongoing annual fee of 1.00% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, which is higher than the Rule 12b-1 fees borne by Class A and Class B shares. 14 Your Account - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. 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. 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 Management Distributors, 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 Management Distributors, 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. Exchanges of Class B shares for Class B shares of another fund distributed by Columbia Management Distributors, Inc. in amounts of $50,000 or more are still permitted. 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, 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 10 days after your purchase to protect against 15 Your Account 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -------------------------------------------------------------------------------- Method Instructions Through your financial advisor You may call your financial advisor to place your sell order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into the same share class (and, in some cases, certain other classes) of another fund distributed by Columbia Management Distributors, 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, if applicable, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic withdrawal plan You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic funds transfer You may sell shares of the Fund and request that the proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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 16 Your Account 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 17 Your Account 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 the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. 18 Your Account Distribution Options The Fund distributes any 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, 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. 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. 19 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 his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.64% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. 20 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. 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 also manages two domestic separate accounts and two offshore funds. He has been the president of Wanger Advisors Trust since September 2003. The Statement of Additional Information 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. fund of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is also 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 - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. 21 Managing the Fund CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 22 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 growth potential and financial strength o innovative marketing o adequate working capital o valuable assets o managerial skill o conservative accounting practices o market niche o adequate profit margin 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 superior performance that is objectives and is important to maintaining a it 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. 23 Other Investments Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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. 24 Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years for its Class A, Class B and Class C shares, which run from January 1 to December 31. 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Acorn Fund - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class A Class A Class A Class A Class A --------- --------- --------- ------- ------- Net asset value -- Beginning of period ($) 25.93 22.20 15.34 17.80 17.19 - ------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income (loss)(a) 0.07 (0.05) (0.07) (0.07) (0.05) Net realized and unrealized gain (loss) 3.20 4.69 6.95 (2.39) 1.01 - ------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.27 4.64 6.88 (2.46) 0.96 - ------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.07) -- -- -- -- From net realized gains (1.56) (0.91) (0.02) -- (0.35) - ------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.63) (0.91) (0.02) -- (0.35) - ------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 27.57 25.93 22.20 15.34 17.80 - ------------------------------------------------------------------------------------------------------------------- Total return (%)(b) 12.76(c) 21.05(c) 44.85 (13.82) 5.56 - ------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 1.03 1.20 1.33 1.42 1.42 Net investment income (loss)(d) 0.28 (0.21) (0.36) (0.45) (0.33) Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 16 20 10 13 20 Net assets at end of period (000's) ($) 3,349,461 2,669,936 1,982,260 724,121 306,405
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 25 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn Fund - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class B Class B Class B Class B Class B --------- --------- --------- ------- ------- Net asset value -- Beginning of period ($) 25.19 21.75 15.13 17.67 17.17 - ------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(a) (0.11) (0.22) (0.18) (0.17) (0.16) Net realized and unrealized gain (loss) 3.09 4.57 6.82 (2.37) 1.01 - ------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.98 4.35 6.64 (2.54) 0.85 - ------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (1.56) (0.91) (0.02) -- (0.35) - ------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.56) (0.91) (0.02) -- (0.35) - ------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 26.61 25.19 21.75 15.13 17.67 - ------------------------------------------------------------------------------------------------------------------- Total return (%)(b) 11.98(c) 20.15(c) 43.89 (14.37) 4.92 - ------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data(%): Expenses(d) 1.72 1.95 1.98 2.07 2.07 Net investment loss(d) (0.42) (0.96) (1.01) (1.10) (0.98) Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 16 20 10 13 20 Net assets at end of period (000's) ($) 1,422,580 1,399,135 1,221,931 618,727 286,422
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 26 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn Fund - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class C Class C Class C Class C Class C --------- --------- --------- ------- ------- Net asset value -- Beginning of period ($) 25.18 21.75 15.12 17.66 17.17 - ------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(a) (0.13) (0.22) (0.18) (0.17) (0.17) Net realized and unrealized gain (loss) 3.09 4.56 6.83 (2.37) 1.01 - ------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.96 4.34 6.65 (2.54) 0.84 - ------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (1.56) (0.91) (0.02) -- (0.35) - ------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.56) (0.91) (0.02) -- (0.35) - ------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 26.58 25.18 21.75 15.12 17.66 - ------------------------------------------------------------------------------------------------------------------- Total return (%)(b) 11.90(c) 20.11(c) 43.99 (14.38) 4.86 - ------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data(%): Expenses(d) 1.82 1.95 1.98 2.07 2.07 Net investment income loss(d) (0.51) (0.96) (1.01) (1.10) (0.98) Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 16 20 10 13 20 Net assets at end of period (000's) ($) 1,220,339 1,083,006 900,016 376,024 150,727
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 27 APPENDIX - -------------------------------------------------------------------------------- Hypothetical Investment and Expense Information - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The tables show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The tables also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the tables, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charges but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher. As noted previously, the Fund's minimum investment for initial purchases or exchanges is $75,000. - -------------------------------------------------------------------------------- Columbia Acorn Fund -- Class A Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- ---------------- ------------------- --------------- ------------ 1 5.00% 1.04% -2.02%(2) $ 9,798.23 $ 674.96 2 10.25% 1.04% 1.86% $ 10,186.24 $ 103.92 3 15.76% 1.04% 5.90% $ 10,589.62 $ 108.03 4 21.55% 1.04% 10.09% $ 11,008.96 $ 112.31 5 27.63% 1.04% 14.45% $ 11,444.92 $ 116.76 6 34.01% 1.04% 18.98% $ 11,898.14 $ 121.38 7 40.71% 1.04% 23.69% $ 12,369.30 $ 126.19 8 47.75% 1.04% 28.59% $ 12,859.13 $ 131.19 9 55.13% 1.04% 33.68% $ 13,368.35 $ 136.38 10 62.89% 1.04% 38.98% $ 13,897.74 $ 141.78 Total Gain After Fees and Expenses $ 3,897.74 Total Annual Fees and Expenses $1,772.92
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. (2) Reflects deduction of the maximum initial sales charge. 28 Appendix - -------------------------------------------------------------------------------- Columbia Acorn Fund -- Class B Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- ---------------- ------------------- --------------- ------------ 1 5.00% 1.73% 3.27% $ 10,327.00 $ 175.83 2 10.25% 1.73% 6.65% $ 10,664.69 $ 181.58 3 15.76% 1.73% 10.13% $ 11,013.43 $ 187.52 4 21.55% 1.73% 13.74% $ 11,373.57 $ 193.65 5 27.63% 1.73% 17.45% $ 11,745.48 $ 199.98 6 34.01% 1.73% 21.30% $ 12,129.56 $ 206.52 7 40.71% 1.73% 25.26% $ 12,526.20 $ 213.27 8 47.75% 1.73% 29.36% $ 12,935.80 $ 220.25 9 55.13% 1.04% 34.48% $ 13,448.06 $ 137.20 10 62.89% 1.04% 39.81% $ 13,980.60 $ 142.63 Total Gain After Fees and Expenses $ 3,980.60 Total Annual Fees and Expenses $1,858.41
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 29 Appendix - -------------------------------------------------------------------------------- Columbia Acorn Fund -- Class C Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- ---------------- ------------------- --------------- ------------ 1 5.00% 1.83% 3.17% $ 10,317.00 $ 185.90 2 10.25% 1.83% 6.44% $ 10,644.05 $ 191.79 3 15.76% 1.83% 9.81% $ 10,981.47 $ 197.87 4 21.55% 1.83% 13.30% $ 11,329.58 $ 204.15 5 27.63% 1.83% 16.89% $ 11,688.73 $ 210.62 6 34.01% 1.83% 20.59% $ 12,059.26 $ 217.29 7 40.71% 1.83% 24.42% $ 12,441.54 $ 224.18 8 47.75% 1.83% 28.36% $ 12,835.93 $ 231.29 9 55.13% 1.83% 32.43% $ 13,242.83 $ 238.62 10 62.89% 1.83% 36.63% $ 13,662.63 $ 246.18 Total Gain After Fees and Expenses $ 3,662.63 Total Annual Fees and Expenses $2,147.90
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 30 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn Fund - -------------------------------------------------------------------------------- [COLUMBIAFUNDS(R) LOGO] ColumbiaFunds A Member of Columbia Management (C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com INT-36/109687-0306 COLUMBIA ACORN INTERNATIONAL Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 (Commissions) ................................................ 10 How to Exchange Shares ..................................................... 10 How to Sell Shares ......................................................... 11 Fund Policy on Trading of Fund Shares and Redemption Fees .................. 12 Financial Intermediary Payments ............................................ 14 Other Information About Your Account ....................................... 15 BOARD OF TRUSTEES 17 - -------------------------------------------------------------------------------- MANAGING THE FUND .......................................................... 18 - -------------------------------------------------------------------------------- Investment Adviser ......................................................... 18 Portfolio Managers ......................................................... 18 Legal Proceedings .......................................................... 19 OTHER INVESTMENT STRATEGIES AND RISKS 20 - -------------------------------------------------------------------------------- The Information Edge ....................................................... 20 Long-Term Investing ........................................................ 20 Derivative Strategies ...................................................... 21 Temporary Defensive Strategies ............................................. 21 FINANCIAL HIGHLIGHTS 22 - -------------------------------------------------------------------------------- APPENDIX 23 - -------------------------------------------------------------------------------- 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 ("Acorn International") seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- 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 United States, that are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. 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. 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 the 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) 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 is inherent in the Fund's investment strategy. 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 large portion of its assets invested in a particular sector. FOREIGN SECURITIES are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in EMERGING MARKETS are 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 team 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. 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 S&P/Citigroup EMI Global ex-U.S. Index and the Morgan Stanley Europe, Australasia and Far East Index (EAFE). The S&P/Citigroup EMI Global ex-U.S., the Fund's primary benchmark, is an index of the bottom 20% of institutionally investable capital of developed and emerging countries, selected by the index sponsor, outside the United States. EAFE is an index of companies throughout the world in proportion to world stock market capitalizations, excluding the United States and Canada. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. - -------------------------------------------------------------------------------- CALENDAR YEAR TOTAL RETURNS (CLASS Z) (1) - -------------------------------------------------------------------------------- [BAR CHART] 20.65% 0.19% 15.43% 79.19% -20.02% -21.11% -16.10% 47.80% 29.47% 21.81% - -------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (1) The Fund's performance in 1999 was achieved during a period of unusual market conditions. 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, 2005 - --------------------------------------------------------------------------------
SHARE CLASS 1 YEAR 5 YEAR 10 YEARS (1) Class Z (%) Return Before Taxes 21.81 9.06 11.93 Return After Taxes on Distributions 20.96 8.78 10.94 Return After Taxes on Distributions and Sale of Fund Shares 15.54 7.84 10.21 - ----------------------------------------------------------------------------------------------- INDICES S&P/Citigroup EMI Global ex-U.S. (%) 21.99 14.20 8.43 - ----------------------------------------------------------------------------------------------- EAFE (%) 13.54 4.55 5.84 - -----------------------------------------------------------------------------------------------
(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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. 5 THE FUND - -------------------------------------------------------------------------------- SHAREHOLDER FEES (1) (COMMISSIONS 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" below. (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) (%) 0.79 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(2) (%) 0.22 - -------------------------------------------------------------------------------- Total annual fund operating expenses (2) (%) 1.01 (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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses would be 0.99%. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. 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 - -------------------------------------------------------------------------------- EXAMPLE EXPENSES FOR A $10,000 INVESTMENT (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS $103 $322 $558 $1,236 See the Appendix for additional hypothetical investment and expense information. 6 YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described on page 8), 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 Management 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 Management Distributors, 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 financial advisor account and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and (new account) check made payable to the Fund to Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the (existing account) additional investment stub included in your 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 Management 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 Management Distributors Inc. for shares of the same class or Class A of the Fund at no additional cost. There may be an additional sales 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 investment plan minimum) automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. You may terminate your program or change the amount of the exchange (subject to the $100 minimum) by calling 1-800-345-6611. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by diversification another fund into the same class of shares of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. 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 Fund 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 with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any 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 a broker-dealer, bank, third-party administrator or other financial institution (each commonly referred to as 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. You may be asked to provide information, including account statements and other records, regarding your eligibility. 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 purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary; o Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Any investor purchasing through a Columbia Management Group, LLC state tuition plan 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. 8 YOUR ACCOUNT $1,000 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 Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD; o Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD; o Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary; o Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement); o Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an ACCREDITED INVESTOR, as defined under the Securities Act of 1933; or o Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. The Fund reserves the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. 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. 9 YOUR ACCOUNT SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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 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. 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 CMD 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 CMD that does not have a redemption fee (including Columbia Acorn Fund, Columbia Acorn USA, Columbia Acorn Select and Columbia Thermostat Fund), 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 CMD 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 CMD 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 determines that your exchange activity is likely to 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. 10 YOUR ACCOUNT 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES: - -------------------------------------------------------------------------------- METHOD INSTRUCTIONS Through your You may call your financial advisor to place your sell financial advisor order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into Class Z shares or Class A shares (only if Class Z is not offered) of another fund distributed by Columbia Management Distributors, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 11 YOUR ACCOUNT 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. 12 YOUR ACCOUNT Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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 Fund 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 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: 13 YOUR ACCOUNT 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 registered investment company 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. FINANCIAL INTERMEDIARY PAYMENTS - -------------------------------------------------------------------------------- The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.40% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. 14 YOUR ACCOUNT Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's Class Z share price 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 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 the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. 15 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 any 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, 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 16 YOUR ACCOUNT 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. 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 a 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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. 17 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.79% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a team to assist the 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 Statement of Additional Information 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 Statement of Additional Information provides additional information about Mr. Mendes' compensation, other accounts he manages and his ownership of securities in the Fund. 18 MANAGING THE FUND LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin 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 A THAT IT BELIEVES WOULD ALSO MAKE THE SUSTAINABLE OVER TIME. 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 INVESTMENTS STRATEGIES AND RISKS DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- COLUMBIA ACORN INTERNATIONAL - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 CLASS Z CLASS Z CLASS Z CLASS Z CLASS Z ------- ------- ------- ------- ------- NET ASSET VALUE -- BEGINNING OF PERIOD ($) 29.03 22.66 15.40 18.47 23.85 - ------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS ($) Net investment income(a) 0.34 0.25 0.21 0.14 0.12 Net realized and unrealized gain (loss) 5.87 6.37 7.13 (3.10) (5.11) - -------------------------------------------------------------------------------------------------------------------- Total Income from Investment Operations 6.21 6.62 7.34 (2.96) (4.99) ------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.72) (0.25) (0.08) (0.11) -- From net realized gains (1.08) -- -- -- (0.39) - ------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.80) (0.25) (0.08) (0.11) (0.39) - ------------------------------------------------------------------------------------------------------------------- REDEMPTION FEES Redemption fees added to paid in capital 0.00 (a)(b) 0.00 (a)(b) -- -- -- - ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD ($) 33.44 29.03 22.66 15.40 18.47 - ------------------------------------------------------------------------------------------------------------------- Total return (%) (c) 21.81 (d) 29.47 (d) 47.80 (16.10) (21.11) - ------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS SUPPLEMENTAL DATA (%): Expenses(e) 0.99 1.08 1.05 1.06 1.06 Net investment income(e) 1.09 1.01 1.19 0.80 0.62 Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 27 40 40 52 45 Net assets, end of period (in millions) ($) 2,629 1,919 1,563 1,241 1,613
(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 Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact. 22 APPENDIX - -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The table shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The table also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the table, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. - -------------------------------------------------------------------------------- COLUMBIA ACORN INTERNATIONAL -- CLASS Z SHARES - --------------------------------------------------------------------------------
INITIAL HYPOTHETICAL MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.01% 3.99% $10,399.00 $ 103.01 2 10.25% 1.01% 8.14% $10,813.92 $ 107.13 3 15.76% 1.01% 12.45% $11,245.40 $ 111.40 4 21.55% 1.01% 16.94% $11,694.09 $ 115.84 5 27.63% 1.01% 21.61% $12,160.68 $ 120.47 6 34.01% 1.01% 26.46% $12,645.89 $ 125.27 7 40.71% 1.01% 31.50% $13,150.46 $ 130.27 8 47.75% 1.01% 36.75% $13,675.17 $ 135.47 9 55.13% 1.01% 42.21% $14,220.81 $ 140.87 10 62.89% 1.01% 47.88% $14,788.22 $ 146.50 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,788.22 TOTAL ANNUAL FEES AND EXPENSES $1,236.24
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 23 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 24 NOTES - 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-------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn International - -------------------------------------------------------------------------------- [LOGO] COLUMBIAFUNDS A MEMBER OF COLUMBIA MANAGEMENT (C) 2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.426.3750 WWW.COLUMBIAFUNDS.COM INT-36/109690-0306 Columbia Acorn International Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 Commissions and Other Expenses ........................................... 6 YOUR ACCOUNT 8 - -------------------------------------------------------------------------------- Choosing a Share Class ................................................... 8 How to Buy Shares ........................................................ 8 Investment Minimums ...................................................... 9 Sales Charges (Commissions) .............................................. 10 How to Exchange Shares ................................................... 15 How to Sell Shares ....................................................... 15 Fund Policy on Trading of Fund Shares .................................... 16 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 - -------------------------------------------------------------------------------- APPENDIX 29 - -------------------------------------------------------------------------------- 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 ("Acorn International") seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- 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 United States, that are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. 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. 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 the 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 is inherent in the Fund's investment strategy. 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 large portion of its assets invested in a particular sector. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in emerging markets are 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 team 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. 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, five years and the life of the share class. 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 Class commenced operations. They include the effects of Fund expenses, but not the effects of sales charges paid directly by the shareholder. 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, five years and the life of the share class. 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 (Commissions)." The Fund's returns are compared to the S&P/Citigroup EMI Global ex-U.S. index and the Morgan Stanley Europe, Australasia and Far East Index (EAFE). The S&P/Citigroup EMI Global ex-U.S., the Fund's primary benchmark, is an index of the bottom 20% of institutionally investable capital of developed and emerging countries, selected by the index sponsor, outside the United States. EAFE is an index of companies throughout the world in proportion to world stock market capitalizations, excluding the United States and Canada. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 1996 -- 1997 -- 1998 -- 1999 -- 2000 -- 2001 -21.59% 2002 -16.46% 2003 46.94% 2004 28.91% 2005 21.42% 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, 2005(1) - --------------------------------------------------------------------------------
Life of the Share Class 1 Year 5 Year Share Class(2) Class A (%) Return Before Taxes 14.44 7.27 5.94 Return After Taxes on Distributions 13.74 7.08 5.25 Return After Taxes on Distributions and Sale of Fund Shares 10.56 6.31 4.92 - ----------------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes 15.57 7.51 6.28 Return After Taxes on Distributions 15.05 7.40 5.66 Return After Taxes on Distributions and Sale of Fund Shares 11.12 6.56 5.25 - ----------------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 19.45 7.79 6.41 Return After Taxes on Distributions 18.93 7.69 5.79 Return After Taxes on Distributions and Sale of Fund Shares 13.65 6.81 5.37 - ----------------------------------------------------------------------------------------------------- Indices S&P/Citigroup EMI Global ex-U.S. (%) 21.99 14.20 13.41(3) - ----------------------------------------------------------------------------------------------------- EAFE (%) 13.54 4.55 4.60(3)
(1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the Investment Adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) The inception date for Class A, Class B and Class C shares is October 16, 2000. (3) Performance information is from October 16, 2000. 5 The Fund COMMISSIONS AND OTHER EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the commissions and other expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges (Commissions) are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor, who compensates your financial advisor. 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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- 6 The Fund - -------------------------------------------------------------------------------- Shareholder Fees(1) (commissions 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 12 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) (%) 0.79 0.79 0.79 - ---------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - ---------------------------------------------------------------------------------------------------------------- Other expenses(2) (%) 0.28 0.39 0.32 - ---------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses(2) (%) 1.32 2.03 2.11
(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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses for Classes A, B and C would be 1.30%, 2.01% and 2.09%, respectively. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 $702 $969 $1,257 $2,074 - ---------------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $206 $637 $1,093 $2,176 sold all your shares at the end of the period $706 $937 $1,293 $2,176 - ---------------------------------------------------------------------------------------------------------------- Class C: did not sell your shares $214 $661 $1,134 $2,441 sold all your shares at the end of the period $314 $661 $1,134 $2,441
See the Appendix for additional hypothetical investment and expense information. 7 Your Account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- The Fund offers multiple classes of shares. This prospectus offers shares of three classes - Class A, Class B and Class C. Each of those share classes has its own commission and expense structure that affects the investment return of that class. Determining which share class is best for you depends on various factors, including the amount you are investing, how long you expect to hold your investment and your personal situation. You should consult with your financial advisor before deciding which share class is most appropriate for you. The following considerations should be part of your assessment: o You will pay a commission if you buy Class A, B or C shares, either at the time of investment or redemption, or through ongoing distribution commission payments ("Rule 12b-1 fees") made from your investment over time, or both. o Class A shares require an up-front commission payment, but pay lower ongoing Rule 12b-1 fees than Class B and Class C shares. Class B and Class C shares have no up-front commission paid by the shareholder but pay higher ongoing commissions (Rule 12b-1 fees), and a deferred commission is imposed on a redemption of Class B shares within six years after purchase. The differential between classes will vary depending on the actual investment return for any given period. o Class A shares are generally more advantageous to an investor who intends to hold the shares for several years and invests an amount large enough to qualify for a reduced rate of initial sales commission, taking into account the commissions you may pay when redeeming shares of other classes. Class A shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.25% of the average value of the shares. o Class B shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.85% of the average value of the shares and automatically convert to Class A shares after eight years. A Class B shareholder of the Fund whose account has a value of less than $50,000 (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares) may purchase additional Class B shares of the Fund to increase the account value up to a maximum of $49,999; any additional investment by the shareholder in that Fund will be invested in Class A shares of the Fund, without regard to the normal investment minimum for Class A shares, but will be subject to the applicable Class A shares up-front commission. o Class C shares are generally more advantageous to an investor who intends to hold shares for only a few years. Class C shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 1.00% of the average value of the shares. o If you invest $1 million or more you can purchase Class A shares but not Class C shares. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other eligible investors. Class Z shares are offered by a separate prospectus. HOW TO BUY SHARES - -------------------------------------------------------------------------------- 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 8 Your Account 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 - -------------------------------------------------------------------------------- The investment minimum for initial investment (by purchase, exchange or transfer) of Class A, B and C shares is $1,000. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. For participants in the Automatic Investment Plan the initial investment minimum is $50. For participants in certain retirement plans the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. 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. Please see the Statement of Additional Information for more details on investment minimums. - -------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -------------------------------------------------------------------------------- Method Instructions Through your Your financial advisor can help you establish your account financial advisor and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and check (new account) made payable to the Fund to the transfer agent, Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your account statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, 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 sales charge if exchanging from a money market fund. An exchange to another fund may incur a sales charge if the original purchase was not assessed a sales charge. 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 minimum) investment plan automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. 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 diversification another fund into the same class of shares (and, in some cases, certain other classes) of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your dividends in the Fund, call 1-800-345-6611. 9 Your Account SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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. 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 sales and marketing fees (commissions) 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. The annual fee, as a percentage of the value of the shares, is normally 0.25% for Class A, 0.85% Class B and 1.00% for Class C shares. These fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the Rule 12b-1 fee thereafter. Financial Intermediary Payments The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. 10 Your Account Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. Class A shares Your purchases of Class A shares are made at the public offering price. 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 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 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 it distributes. Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-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. 11 Your Account For Class A share purchases of $1 million or more by certain group retirement plans, 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 $50 million 0.50 - -------------------------------------------------------------------------------- $50 million or more 0.25 For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million. - -------------------------------------------------------------------------------- UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (COMMISSIONS) 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 (Commissions) 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. 12 Your Account 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. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend 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 advisor's 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 Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into other Columbia funds, as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. 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, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. 13 Your Account Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases in Class B shares may not result in the account holding $50,000 or more of Class B shares (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares). In the event that an existing Class B shareholder seeks to add funds to such an account in excess of $49,999, the amount in excess may be invested in Class A shares without the imposition of the minimum investment requirement for Class A shares. Such purchases of Class A shares will be subject to the applicable sales load imposed on such purchases. See "Class A Sales Charges" on page 11. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold within six years of purchase. The CDSC declines over the six years and disappears in the seventh year. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart 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 $50,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when shares Holding period after purchase are sold(1) 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 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. Up-front commission to financial advisors is 4.00% and is paid by the distributor. In addition, from the annual fee of 0.85% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, the distributor receives 0.60% of the value of the shares for each of the first eight years, or an aggregate 4.80% over eight years, which will offset the commission it paid to your financial advisor. Your financial advisor is paid the remaining 0.25% as an ongoing commission for the life of your investment. The conversion of Class B shares to Class A shares occurs automatically eight years after purchase. 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 your purchase of Class C shares, for which the distributor is repaid from the ongoing annual fee of 1.00% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, which is higher than the Rule 12b-1 fees borne by Class A and Class B shares. 14 Your Account - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when shares Holding period after purchase are sold(1) Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. 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. 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 Management Distributors, 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 Management Distributors, 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. Exchanges of Class B shares for Class B shares of another fund distributed by Columbia Management Distributors, Inc. in amounts of $50,000 or more are still permitted. 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, 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 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be 15 Your Account 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -------------------------------------------------------------------------------- Method Instructions Through your You may call your financial advisor to place your financial advisor sell order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into the same share class(and, in some cases, certain other classes) of another fund distributed by Columbia Management Distributors, 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, if applicable, 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 Management 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 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 withdrawal plan or percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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 16 Your Account 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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 Fund 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 17 Your Account 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 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 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 registered investment company qualification for tax purposes. 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. 18 Your Account 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 the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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 any 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 - -------------------------------------------------------------------------------- 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, 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. 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 a 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.79% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a team to assist the 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 Statement of Additional Information 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 Statement of Additional Information provides additional information about Mr. Mendes' compensation, other accounts he manages and his ownership of securities in the Fund. 22 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 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 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin o good earnings prospects o strong demand for product The realization of this A strong balance sheet gives management Once CWAM uncovers an attractive growth potential would likely greater flexibility to pursue strategic company, it identifies a price that it produce superior performance objectives and is important to believes would also make the stock a that is sustainable over time. maintaining a competitive advantage. 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 Investments Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions 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 last five fiscal years for its Class A, Class B and Class C shares, which run from January 1 to December 31. 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Acorn International - --------------------------------------------------------------------------------
Year ended December 31, - ----------------------------------------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 Class A Class A Class A Class A Class A ------- ------- ------- ------- -------- Net Asset Value -- Beginning of Period ($) 28.75 22.45 15.32 18.35 23.84 - ----------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.22 0.14 0.10 0.05 0.01 Net realized and unrealized gain (loss) 5.84 6.31 7.08 (3.07) (5.11) - ---------------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.06 6.45 7.18 (3.02) (5.10) - ---------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.53) (0.15) (0.05) (0.01) -- From net realized gains (1.08) -- -- -- (0.39) - ---------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.61) (0.15) (0.05) (0.01) (0.39) - ---------------------------------------------------------------------------------------------------------------- Net Asset Value --- End of Period ($) 33.20 28.75 22.45 15.32 18.35 - ---------------------------------------------------------------------------------------------------------------- Total return (%)(b) 21.42(c) 28.91(c) 46.94 (16.46) (21.59) - ---------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 1.30 1.48 1.59 1.56 1.65 Net investment income(d) 0.72 0.61 0.57 0.30 0.03 Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 27 40 40 52 45 Net assets at end of period (000's) ($) 142,204 70,582 52,872 33,806 25,587
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 26 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn International - --------------------------------------------------------------------------------
Year ended December 31, - ---------------------------------------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 Class B Class B Class B Class B Class B Net Asset Value -- Beginning of Period ($) 28.18 22.07 15.11 18.22 23.81 - ---------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income (loss)(a) 0.02 (0.04) (0.02) (0.06) (0.12) Net realized and unrealized gain (loss) 5.73 6.19 6.98 (3.05) (5.08) - ---------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.75 6.15 6.96 (3.11) (5.20) - ---------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.14) (0.04) -- -- -- From net realized gains (1.08) -- -- -- (0.39) - ---------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.22) (0.04) -- -- (0.39) - ---------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 32.71 28.18 22.07 15.11 18.22 - ---------------------------------------------------------------------------------------------------------------- Total return (%)(b) 20.57(c) 27.91(d) 46.06 (17.07) (22.04) - ---------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 2.01 2.27 2.24 2.21 2.30 Net investment loss(d) 0.08 (0.18) (0.10) (0.35) (0.62) Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 27 40 40 52 45 Net assets at end of period (000's) ($) 73,572 54,752 39,800 22,560 17,235
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 27 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn International - --------------------------------------------------------------------------------
Year ended December 31, - ---------------------------------------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 Class C Class C Class C Class C Class C Net Asset Value -- Beginning of Period ($) 28.19 22.06 15.11 18.21 23.81 - ---------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(a) (0.00)(b) (0.03) (0.01) (0.06) (0.13) Net realized and unrealized gain (loss) 5.71 6.20 6.96 (3.04) (5.08) - ---------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.71 6.17 6.95 (3.10) (5.21) - ---------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.14) (0.04) -- -- -- From net realized gains (1.08) -- -- -- (0.39) - ---------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.22) (0.04) -- -- (0.39) - ---------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 32.68 28.19 22.06 15.11 18.21 - ---------------------------------------------------------------------------------------------------------------- Total return (%)(c) 20.45(d) 28.01(d) 46.00 (17.02) (22.08) - ---------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%:) Expenses(e) 2.09 2.24 2.24 2.21 2.30 Net investment (loss)(e) (0.01) (0.15) (0.06) (0.35) (0.62) Waiver/reimbursement 0.02 0.02 -- -- -- Portfolio turnover rate (%) 27 40 40 52 45 Net assets at end of period (000's) ($) 47,325 30,547 22,990 14,575 14,327
(a) Per share data was calculated using average shares outstanding during the period. (b) Rounds to less than $(0.01) per shares. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact. 28 APPENDIX - -------------------------------------------------------------------------------- Hypothetical Investment and Expense Information - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The tables show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The tables also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the tables, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher. - -------------------------------------------------------------------------------- Columbia Acorn International -- Class A Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $ 10,000.00 5%
Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---------- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.32% -2.28%(2) $ 9,771.84 $ 701.70 2 10.25% 1.32% 1.31% $10,131.44 $ 131.36 3 15.76% 1.32% 5.04% $10,504.28 $ 136.20 4 21.55% 1.32% 8.91% $10,890.84 $ 141.21 5 27.63% 1.32% 12.92% $11,291.62 $ 146.40 6 34.01% 1.32% 17.07% $11,707.15 $ 151.79 7 40.71% 1.32% 21.38% $12,137.98 $ 157.38 8 47.75% 1.32% 25.85% $12,584.65 $ 163.17 9 55.13% 1.32% 30.48% $13,047.77 $ 169.17 10 62.89% 1.32% 35.28% $13,527.93 $ 175.40 Total Gain After Fees and Expenses $ 3,527.93 Total Annual Fees and Expenses $2,073.78
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. (2) Reflects deduction of the maximum initial sales charge. 29 Appendix - -------------------------------------------------------------------------------- Columbia Acorn International -- Class B Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $ 10,000.00 5%
Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- ----------------- ------------------ --------------- ------------ 1 5.00% 2.03% 2.97% $ 10,297.00 $ 206.01 2 10.25% 2.03% 6.03% $ 10,602.82 $ 212.13 3 15.76% 2.03% 9.18% $ 10,917.72 $ 218.43 4 21.55% 2.03% 12.42% $ 11,241.98 $ 224.92 5 27.63% 2.03% 15.76% $ 11,575.87 $ 231.60 6 34.01% 2.03% 19.20% $ 11,919.67 $ 238.48 7 40.71% 2.03% 22.74% $ 12,273.69 $ 245.56 8 47.75% 2.03% 26.38% $ 12,638.21 $ 252.86 9 55.13% 1.32% 31.03% $ 13,103.30 $ 169.89 10 62.89% 1.32% 35.86% $ 13,585.50 $ 176.15 Total Gain After Fees and Expenses $ 3,585.50 Total Annual Fees and Expenses $ 2,176.04
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 30 Appendix - -------------------------------------------------------------------------------- Columbia Acorn International -- Class C Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $ 10,000.00 5%
Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- ----------------- ------------------ --------------- ------------ 1 5.00% 2.11% 2.89% $ 10,289.00 $ 214.05 2 10.25% 2.11% 5.86% $ 10,586.35 $ 220.23 3 15.76% 2.11% 8.92% $ 10,892.30 $ 226.60 4 21.55% 2.11% 12.07% $ 11,207.09 $ 233.15 5 27.63% 2.11% 15.31% $ 11,530.97 $ 239.89 6 34.01% 2.11% 18.64% $ 11,864.21 $ 246.82 7 40.71% 2.11% 22.07% $ 12,207.09 $ 253.95 8 47.75% 2.11% 25.60% $ 12,559.88 $ 261.29 9 55.13% 2.11% 29.23% $ 12,922.86 $ 268.84 10 62.89% 2.11% 32.96% $ 13,296.33 $ 276.61 Total Gain After Fees and Expenses $ 3,296.33 Total Annual Fees and Expenses $ 2,441.44
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. 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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 35 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn International - -------------------------------------------------------------------------------- [COLUMBIAFUNDS(R) LOGO] Columbia Funds A Member of Columbia Management (C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com INT-36/109588-0306 COLUMBIA ACORN USA Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 (Commissions) ................................................ 9 How to Exchange Shares ..................................................... 9 How to Sell Shares ......................................................... 9 Fund Policy on Trading of Fund Shares ...................................... 10 Financial Intermediary Payments ............................................ 12 Other Information About Your Account ....................................... 13 BOARD OF TRUSTEES 15 - -------------------------------------------------------------------------------- MANAGING THE FUND 15 - -------------------------------------------------------------------------------- Investment Adviser ......................................................... 15 Portfolio Manager .......................................................... 15 Legal Proceedings .......................................................... 16 OTHER INVESTMENT STRATEGIES AND RISKS 18 - -------------------------------------------------------------------------------- The Information Edge ....................................................... 18 Long-Term Investing ........................................................ 18 Derivative Strategies ...................................................... 19 Temporary Defensive Strategies ............................................. 19 FINANCIAL HIGHLIGHTS 20 - -------------------------------------------------------------------------------- APPENDIX 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 USA (the "Fund") 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 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) 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 is inherent in the Fund's investment strategy. 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 large 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 team 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. 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 the life of the share class. 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 years and life of the share class. 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 - -------------------------------------------------------------------------------- CALENDAR YEAR TOTAL RETURNS (CLASS Z) - -------------------------------------------------------------------------------- [BAR CHART] 32.30% 5.79% 23.02% -8.99% 19.25% -18.49% 47.13% 20.62% 12.98% - -------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 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, 2005 - --------------------------------------------------------------------------------
LIFE OF THE SHARE CLASS 1 YEAR 5 YEARS SHARE CLASS (1) Class Z (%) Return Before Taxes 12.98 14.28 14.58 Return After Taxes on Distributions 12.11 13.99 13.84 Return After Taxes on Distributions and Sale of Fund Shares 9.56 12.49 12.75 - ---------------------------------------------------------------------------------------------------- INDEX Russell 2000(R) (%) 4.55 8.22 9.24 (2) - ----------------------------------------------------------------------------------------------------
(1) The inception date for Class Z shares is September 4, 1996. (2) Performance information is from September 4, 1996. 4 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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (1) (COMMISSIONS 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) (%) 0.87 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses (3) (%) 0.12 - -------------------------------------------------------------------------------- Total annual fund operating expenses (3) (%) 0.99 - -------------------------------------------------------------------------------- (1) Expenses have been adjusted to reflect current contractual arrangements. (2) 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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (3) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses would be 0.98%. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. 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 + For example only, since the minimum initial investment in the Fund is $75,000, subject to certain exceptions described in the section "Eligible Investors" on page 7. - -------------------------------------------------------------------------------- EXAMPLE EXPENSES FOR A $10,000 INVESTMENT (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- [BAR CHART] 1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213 See the Appendix for additional hypothetical investment and expense information 5 YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described on page 7), 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 Management 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 Management Distributors, 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 financial advisor and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and check (new account) made payable to the Fund to Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your account statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, Inc. for shares of the same class or Class A shares of the Fund at no additional cost. There may be an additional sales 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 investment plan minimum) automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. You may terminate your program or change the amount of the exchange (subject to the $100 minimum) by calling 1-800-345-6611. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by diversification another fund into the same class of shares of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. 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 Fund 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 with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any 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 a broker-dealer, bank, third-party administrator or other financial institution (each commonly referred to as 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. You may be asked to provide information, including account statements and other records, regarding your eligibility. 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 group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; or o Any investor purchasing through a Columbia Management Group, LLC state tuition plan organized under Section 529 of the Internal Revenue Code. $75,000 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 Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD; o Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD (other than Columbia Acorn Funds); 7 YOUR ACCOUNT o Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary (other than Columbia Wanger Asset Management L.P.); o Any investor participating in an account offered by an intermediary or other entity that provides services such an 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 agent (each investor purchasing through an intermediary must independently satisfy the $75,000 minimum investment requirement); o Any client of Bank of America Corporation or a subsidiary purchasing through an asset management company, trust, fiduciary, 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; o Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an ACCREDITED INVESTOR, as defined under the Securities Act of 1933; or o Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. 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; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. 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 SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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 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. 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 CMD 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 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 - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, 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. 9 YOUR ACCOUNT 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES: - -------------------------------------------------------------------------------- METHOD INSTRUCTIONS Through your You may call your financial advisor to place your sell financial advisor order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into Class Z shares or Class A shares (only if Class Z is not offered) of another fund distributed by Columbia Management Distributors, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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 10 YOUR ACCOUNT 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 11 YOUR ACCOUNT FINANCIAL INTERMEDIARY PAYMENTS - -------------------------------------------------------------------------------- The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.40% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial 12 YOUR ACCOUNT advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's Class Z share price 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 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 subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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 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. 13 YOUR ACCOUNT DISTRIBUTION OPTIONS The Fund distributes any 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, 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. 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. 14 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.89% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. 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 manager is responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. 15 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. fund of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is also a vice president of Wanger Advisors Trust and the director of domestic research for CWAM. The Statement of Additional Information provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. 16 MANAGING THE FUND As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin 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 APRICE 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. 18 OTHER INVESTMENTS STRATEGIES AND RISKS DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- COLUMBIA ACORN USA - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 CLASS Z CLASS Z CLASS Z CLASS Z CLASS Z NET ASSET VALUE -- BEGINNING OF PERIOD ($) 25.20 21.01 14.28 17.52 14.90 - ------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS ($) Net investment income (loss)(a) 0.07 (0.15) (0.13) (0.10) (0.08) Net realized and unrealized gain (loss) 3.18 4.48 6.86 (3.14) 2.94 - ------------------------------------------------------------------------------------------------------ Total from Investment Operations 3.25 4.33 6.73 (3.24) 2.86 - ------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.05) -- -- -- -- From net realized gains (1.37) (0.14) -- -- (0.24) - ------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (1.42) (0.14) -- -- (0.24) - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE -- END OF PERIOD ($) 27.03 25.20 21.01 14.28 17.52 - ------------------------------------------------------------------------------------------------------ Total Return (%)(b) 12.98 (c) 20.62 (c) 47.13 (18.49) 19.25 - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA(%): Expenses(d) 1.01 1.09 1.11 1.17 1.17 Net investment income (loss)(d) 0.28 (0.66) (0.72) (0.64) (0.46) Waiver/reimbursement 0.01 0.02 -- -- -- Portfolio turnover rate (%) 13 18 7 31 24 Net assets at end of period (in millions) ($) 937 646 502 235 229
(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 Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 20 APPENDIX - -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The table shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The table also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the table, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. As noted previously, the Fund's minimum investment for initial purchases or exchanges is $75,000. - -------------------------------------------------------------------------------- COLUMBIA ACORN USA -- CLASS Z SHARES - --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) ---- --------------- ---------------- ------------------- ------------------ ------------ 1 5.00% 0.99% 4.01% $ 10,401.00 $ 100.98 2 10.25% 0.99% 8.18% $ 10,818.08 $ 105.03 3 15.76% 0.99% 12.52% $ 11,251.89 $ 109.25 4 21.55% 0.99% 17.03% $ 11,703.09 $ 113.63 5 27.63% 0.99% 21.72% $ 12,172.38 $ 118.18 6 34.01% 0.99% 26.60% $ 12,660.49 $ 122.92 7 40.71% 0.99% 31.68% $ 13,168.18 $ 127.85 8 47.75% 0.99% 36.96% $ 13,696.22 $ 132.98 9 55.13% 0.99% 42.45% $ 14,245.44 $ 138.31 10 62.89% 0.99% 48.17% $ 14,816.68 $ 143.86 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,816.68 TOTAL ANNUAL FEES AND EXPENSES $ 1,213.00
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 21 NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 22 NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn USA - -------------------------------------------------------------------------------- [LOGO] COLUMBIAFUNDS A MEMBER OF COLUMBIA MANAGEMENT (C) 2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.426.3750 WWW.COLUMBIAFUNDS.COM INT-36/109688-0306 Columbia Acorn USA Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 Commissions and Other Expenses ............................................ 6 YOUR ACCOUNT 8 - -------------------------------------------------------------------------------- Choosing a Share Class .................................................... 8 How to Buy Shares ......................................................... 8 Investment Minimums ....................................................... 9 Sales Charges (Commissions) ............................................... 10 How to Exchange Shares .................................................... 15 How to Sell Shares ........................................................ 15 Fund Policy on Trading of Fund Shares ..................................... 16 Other Information About Your Account ...................................... 18 BOARD OF TRUSTEES 20 - -------------------------------------------------------------------------------- MANAGING THE FUND 20 - -------------------------------------------------------------------------------- Investment Adviser ........................................................ 20 Portfolio Manager ......................................................... 20 Legal Proceedings ......................................................... 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 - -------------------------------------------------------------------------------- The Information Edge ...................................................... 23 Long-Term Investing ....................................................... 23 Derivative Strategies ..................................................... 24 Temporary Defensive Strategies ............................................ 24 FINANCIAL HIGHLIGHTS 25 - -------------------------------------------------------------------------------- APPENDIX 28 - -------------------------------------------------------------------------------- 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 (the "Fund") 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 is inherent in the Fund's investment strategy. 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 large 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 team 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. 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, five years and the life of the share class. 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 Class commenced operations. They include the effects of Fund expenses, but not the effects of sales charges paid directly by a shareholder. 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, five years and the life of the share class. 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 (Commissions)." 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 1995 -- 1996 -- 1997 -- 1998 -- 1999 -- 2001 18.65% 2002 -18.97% 2003 46.26% 2004 20.12% 2005 12.68% 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, 2005(1) - --------------------------------------------------------------------------------
Life of the Share Class 1 Year 5 Years Share Class(2) Class A (%) Return Before Taxes 6.20 12.40 13.43 Return After Taxes on Distributions 5.40 12.16 13.21 Return After Taxes on Distributions and Sale of Fund Shares 5.07 10.83 11.78 - ----------------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes 6.84 12.73 13.87 Return After Taxes on Distributions 5.97 12.50 13.64 Return After Taxes on Distributions and Sale of Fund Shares 5.58 11.14 12.18 - ----------------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 10.76 12.96 13.96 Return After Taxes on Distributions 9.89 12.73 13.74 Return After Taxes on Distributions and Sale of Fund Shares 8.13 11.35 12.27 - ----------------------------------------------------------------------------------------------------- Index Russell 2000(R) (%) 4.55 8.22 8.07(3)
(1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the Investment Adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) The inception date for Class A, Class B and Class C shares is October 16, 2000. (3) Performance information is from October 16, 2000. 5 The Fund COMMISSIONS AND OTHER EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the commissions and other expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges (Commissions) are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor, who compensates your financial advisor. 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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shareholder Fees(1) (commissions 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 12 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) (%) 0.87 0.87 0.87 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - -------------------------------------------------------------------------------- Other expenses(3) (%) 0.17 0.27 0.21 - -------------------------------------------------------------------------------- Total annual fund operating expenses(3) (%) 1.29 1.99 2.08 (1) Expenses have been adjusted to reflect current contractual arrangements. (2) 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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (3) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses for Classes A, B and C would be 1.28%, 1.98% and 2.07%, respectively. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. - -------------------------------------------------------------------------------- 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 + For example only, since the minimum initial investment in the Fund is $75,000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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: $ 699 $ 960 $ 1,242 $ 2,042 - -------------------------------------------------------------------------------- Class B: did not sell your shares $ 202 $ 624 $ 1,073 $ 2,136 sold all your shares at the end of the period $ 702 $ 924 $ 1,273 $ 2,136 - -------------------------------------------------------------------------------- Class C: did not sell your shares $ 211 $ 652 $ 1,119 $ 2,410 sold all your shares at the end of the period $ 311 $ 652 $ 1,119 $ 2,410 See the Appendix for additional hypothetical investment and expense information. 7 Your Account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- The Fund offers multiple classes of shares. This prospectus offers shares of three classes - Class A, Class B and Class C. Each of those share classes has its own commission and expense structure that affects the investment return of that class. Determining which share class is best for you depends on various factors, including the amount you are investing, how long you expect to hold your investment and your personal situation. You should consult with your financial advisor before deciding which share class is most appropriate for you. The following considerations should be part of your assessment: o You will pay a commission if you buy Class A, B or C shares, either at the time of investment or redemption, or through ongoing distribution commission payments ("Rule 12b-1 fees") made from your investment over time, or both. o Class A shares require an up-front commission payment, but pay lower ongoing Rule 12b-1 fees than Class B and Class C shares. Class B and Class C shares have no up-front commission paid by the shareholder but pay higher ongoing commissions (Rule 12b-1 fees), and a deferred commission is imposed on a redemption of Class B shares within six years after purchase. The differential between classes will vary depending on the actual investment return for any given period. o Class A shares are generally more advantageous to an investor who intends to hold the shares for several years and invests an amount large enough to qualify for a reduced rate of initial sales commission, taking into account the commissions you may pay when redeeming shares of other classes. Class A shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.25% of the average value of the shares. o Class B shares are no longer offered to new investors. A Class B shareholder of the Fund whose account has a value of less than $50,000 (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares) may purchase additional Class B shares of the Fund to increase the account value up to a maximum of $49,999; any additional investment by the shareholder in that Fund will be invested in Class A shares of the Fund, without regard to the normal investment minimum for Class A shares, but will be subject to the applicable Class A shares up-front commission. Class B shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.85% of the average value of the shares and automatically convert to Class A shares after eight years. o Class C shares are generally more advantageous to an investor who intends to hold shares for only a few years. Class C shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 1.00% of the average value of the shares. o If you invest $1 million or more you can purchase Class A shares but not Class C shares. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other eligible investors. Class Z shares are offered by a separate prospectus. HOW TO BUY SHARES - -------------------------------------------------------------------------------- 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 8 Your Account 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 - -------------------------------------------------------------------------------- The investment minimum for initial investments (by purchase, exchange or certain transfers) of Class A, B and C shares is $75,000. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. 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. Please see the Statement of Additional Information for more details on investment minimums. - -------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -------------------------------------------------------------------------------- Method Instructions Through your Your financial advisor can help you establish your account financial and buy Fund shares on your behalf. To receive the current advisor trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and check (new account) made payable to the Fund to the transfer agent, Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing investment stub included in your account statement, or send account) a letter of instruction including your Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, 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 sales charge if exchanging from a money market fund. An exchange to another fund may incur a sales charge if the original purchase was not assessed a sales charge. 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 minimum) investment plan automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. 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 diversification another fund into the same class of shares (and, in some cases, certain other classes) of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your dividends in the Fund, call 1-800-345-6611. 9 Your Account SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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. 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 sales and marketing fees (commissions) 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. The annual fee, as a percentage of the value of the shares, is normally 0.25% for Class A, 0.85% for Class B and 1.00% for Class C shares. These fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the Rule 12b-1 fee thereafter. Financial Intermediary Payments The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. 10 Your Account Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. Class A shares Your purchases of Class A shares are made at the public offering price. 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 $75,000 or more in Class A shares of the Fund will not be subject to a sales charge. ** Initial purchases of less than $75,000 are no longer accepted. However, for accounts opened prior to February 3, 2006, subsequent investments that do not meet the Fund's current investment minimum will be accepted. 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 it distributes. Class A shares bought without initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on 11 Your Account the first day of the month in which the purchase was made. The CDSC does not apply to retirement purchasing through a fee-based program. For Class A share purchases of $1 million or more by certain group retirement plans, 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 $50 million 0.50 - -------------------------------------------------------------------------------- $50 million or more 0.25 For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million. - -------------------------------------------------------------------------------- UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (COMMISSIONS) 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 (Commissions) 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. 12 Your Account 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. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend 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 advisor's 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 Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into other Columbia funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. 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, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. 13 Your Account Class B shares Your purchases of Class B shares are at Class B's net asset value. No new Class B share accounts may be established in the Fund. However, Class B share accounts established prior to February 3, 2006 may nonetheless purchase additional Class B shares, so long as those purchases do not result in the account holding $50,000 or more of Class B shares (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares). In the event that an existing Class B shareholder seeks to add funds to such an account in excess of $49,999, the amount in excess may be invested in Class A shares without the imposition of the minimum investment requirement for Class A shares. Such purchases of Class A shares will be subject to the applicable sales load imposed on such purchases. See "Class A Sales Charges" on page 11. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold within six years of purchase. The CDSC declines over the six years and disappears in the seventh year. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart 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 $50,000(1): - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(2) 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 (1) Only applicable to accounts opened prior to February 3, 2006. (2) Applied to the net asset value at the time of purchase or sale, whichever is lower. Up-front commission to financial advisors is 4.00% and is paid by the distributor. In addition, from the annual fee of 0.85% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, the distributor receives 0.60% of the value of the shares for each of the first eight years, or an aggregate 4.80% over eight years, which will offset the commission it paid to your financial advisor. Your financial advisor is paid the remaining 0.25% as an ongoing commission for the life of your investment. The conversion of Class B shares to Class A shares occurs automatically eight years after purchase. 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 your purchase of Class C shares, for which the distributor is repaid from the ongoing annual fee of 1.00% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, which is higher than the Rule 12b-1 fees borne by Class A and Class B shares. 14 Your Account - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. 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. 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 Management Distributors, 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 Management Distributors, 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. Exchanges of Class B shares for Class B shares of another fund distributed by Columbia Management Distributors, Inc. in amounts of $50,000 or more are still permitted. 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, 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 10 days after your purchase to protect against 15 Your Account 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. Outlined below are the various options for selling shares: - -------------------------------------------------------------------------------- Method Instructions Through your You may call your financial advisor to place your sell financial advisor order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into the same share class (and, in some cases, certain other classes) of another fund distributed by Columbia Management Distributors, 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, if applicable, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- 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 16 Your Account 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 17 Your Account 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 are unavailable, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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: 18 Your Account - -------------------------------------------------------------------------------- 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 any 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, 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. 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. 19 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 his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.89% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. 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 manager is responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. 20 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. fund of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is also a vice president of Wanger Advisors Trust and the director of domestic research for CWAM. The Statement of Additional Information provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. 21 Managing the Fund The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 22 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin 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 believes would also make the stock a sustainable over time. maintaining a competitive advantage. 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. 23 Other Investments Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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. 24 Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years for its Class A, Class B and Class C, which run from January 1 to December 31. 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Acorn USA - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class A Class A Class A Class A Class A ------- ------- ------- ------- ------- Net Asset Value -- Beginning of Period ($) 24.77 20.74 14.18 17.50 14.88 - --------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(a) (0.01) (0.24) (0.22) (0.19) (0.19) Net realized and unrealized gain (loss) 3.13 4.41 6.78 (3.13) 2.96 - --------------------------------------------------------------------------------------------- Total from Investment Operations 3.12 4.17 6.56 (3.32) 2.77 - --------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (1.37) (0.14) -- -- (0.15) - --------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.37) (0.14) -- -- (0.15) - --------------------------------------------------------------------------------------------- Net asset value -- End of Period ($) 26.52 24.77 20.74 14.18 17.50 - --------------------------------------------------------------------------------------------- Total Return (%)(b) 12.68(c) 20.12(c) 46.26 (18.97) 18.65 - --------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 1.31 1.51 1.65 1.74 1.84 Net investment loss(d) (0.02) (1.08) (1.26) (1.21) (1.13) Waiver/reimbursement 0.01 0.02 -- -- -- Portfolio turnover rate (%) 13 18 7 31 24 Net assets at end of period (000's) ($) 168,922 112,509 89,650 32,422 20,455
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 25 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn USA - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class B Class B Class B Class B Class B ------- ------- ------- ------- ------- Net asset value -- Beginning of period ($) 24.14 20.36 14.01 17.40 14.87 - -------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(a) (0.18) (0.39) (0.32) (0.29) (0.30) Net realized and unrealized gain (loss) 3.02 4.31 6.67 (3.10) 2.96 - -------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.84 3.92 6.35 (3.39) 2.66 - -------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (1.37) (0.14) -- -- (0.13) - -------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.37) (0.14) -- -- (0.13) - -------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 25.61 24.14 20.36 14.01 17.40 - -------------------------------------------------------------------------------------------------------- Total Return (%)(b) 11.84(c) 19.26(d) 45.32 (19.48) 17.92 - -------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 2.00 2.23 2.30 2.39 2.49 Net investment loss(d) (0.72) (1.80) (1.91) (1.86) (1.78) Waiver/reimbursement 0.01 0.02 -- -- -- Portfolio turnover rate (%) 13 18 7 31 24 Net assets at end of period (000's) ($) 73,168 72,643 66,175 37,478 27,722
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 26 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn USA - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class C Class C Class C Class C Class C ------- ------- ------- ------- ------- Net asset value -- Beginning of Period ($) 24.14 20.36 14.01 17.40 14.87 - -------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(a) (0.20) (0.39) (0.32) (0.29) (0.30) Net realized and unrealized gain (loss) 3.02 4.31 6.67 (3.10) 2.96 - -------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.82 3.92 6.35 (3.39) 2.66 - -------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (1.37) (0.14) -- -- (0.13) - -------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.37) (0.14) -- -- (0.13) - -------------------------------------------------------------------------------------------------------- Net asset value -- End of Period ($) 25.59 24.14 20.36 14.01 17.40 - -------------------------------------------------------------------------------------------------------- Total return (%)(b) 11.76(c) 19.26(c) 45.32 (19.48) 17.92 - -------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 2.10 2.23 2.30 2.39 2.49 Net investment loss(d) (0.81) (1.80) (1.91) (1.86) (1.78) Waiver/reimbursement 0.01 0.02 -- -- -- Portfolio turnover rate (%) 13 18 7 31 24 Net assets at end of period (000's) ($) 42,844 39,643 35,662 18,313 13,049
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 27 APPENDIX - -------------------------------------------------------------------------------- Hypothetical Investment and Expense Information - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The tables show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The tables also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the tables, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher. As noted previously, the Fund's minimum investment for initial purchases or exchanges is $75,000. - -------------------------------------------------------------------------------- Columbia Acorn USA -- Class A Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.29% -2.25%(2) $ 9,774.67 $ 698.84 2 10.25% 1.29% 1.37% $10,137.31 $ 128.43 3 15.76% 1.29% 5.13% $10,513.40 $ 133.20 4 21.55% 1.29% 9.03% $10,903.45 $ 138.14 5 27.63% 1.29% 13.08% $11,307.97 $ 143.26 6 34.01% 1.29% 17.27% $11,727.49 $ 148.58 7 40.71% 1.29% 21.63% $12,162.58 $ 154.09 8 47.75% 1.29% 26.14% $12,613.81 $ 159.81 9 55.13% 1.29% 30.82% $13,081.79 $ 165.74 10 62.89% 1.29% 35.67% $13,567.12 $ 171.89 Total Gain After Fees and Expenses $ 3,567.12 Total Annual Fees and Expenses $2,041.97
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. (2) Reflects deduction of the maximum initial sales charge. 28 Appendix - -------------------------------------------------------------------------------- Columbia Acorn USA -- Class B Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.99% 3.01% $10,301.00 $ 201.99 2 10.25% 1.99% 6.11% $10,611.06 $ 208.07 3 15.76% 1.99% 9.30% $10,930.45 $ 214.34 4 21.55% 1.99% 12.59% $11,259.46 $ 220.79 5 27.63% 1.99% 15.98% $11,598.37 $ 227.44 6 34.01% 1.99% 19.47% $11,947.48 $ 234.28 7 40.71% 1.99% 23.07% $12,307.10 $ 241.33 8 47.75% 1.99% 26.78% $12,677.54 $ 248.60 9 55.13% 1.29% 31.48% $13,147.88 $ 166.57 10 62.89% 1.29% 36.36% $13,635.67 $ 172.75 Total Gain After Fees and Expenses $ 3,635.67 Total Annual Fees and Expenses $2,136.17
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 29 Appendix - -------------------------------------------------------------------------------- Columbia Acorn USA -- Class C Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 2.08% 2.92% $10,292.00 $ 211.04 2 10.25% 2.08% 5.93% $10,592.53 $ 217.20 3 15.76% 2.08% 9.02% $10,901.83 $ 223.54 4 21.55% 2.08% 12.20% $11,220.16 $ 230.07 5 27.63% 2.08% 15.48% $11,547.79 $ 236.79 6 34.01% 2.08% 18.85% $11,884.99 $ 243.70 7 40.71% 2.08% 22.32% $12,232.03 $ 250.82 8 47.75% 2.08% 25.89% $12,589.20 $ 258.14 9 55.13% 2.08% 29.57% $12,956.81 $ 265.68 10 62.89% 2.08% 33.35% $13,335.15 $ 273.44 Total Gain After Fees and Expenses $ 3,335.15 Total Annual Fees and Expenses $2,410.41
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 30 - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn USA - -------------------------------------------------------------------------------- [COLUMBIAFUNDS(R) LOGO] ColumbiaFunds A Member of Columbia Managament (C)2006 Columbia Managament Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com INT-36/109688-0306 COLUMBIA ACORN INTERNATIONAL SELECT Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 (Commissions) ............................................... 10 How to Exchange Shares .................................................... 10 How to Sell Shares ........................................................ 11 Fund Policy on Trading of Fund Shares and Redemption Fees ................. 12 Financial Intermediary Payments ........................................... 14 Other Information About Your Account ...................................... 15 BOARD OF TRUSTEES ......................................................... 17 - -------------------------------------------------------------------------------- MANAGING THE FUND ......................................................... 17 - -------------------------------------------------------------------------------- Investment Adviser ........................................................ 17 Portfolio Manager ......................................................... 18 Legal Proceedings ......................................................... 18 OTHER INVESTMENT STRATEGIES AND RISKS ..................................... 19 - -------------------------------------------------------------------------------- The Information Edge ...................................................... 19 Long-Term Investing ....................................................... 20 Derivative Strategies ..................................................... 20 Temporary Defensive Strategies ............................................ 20 FINANCIAL HIGHLIGHTS ...................................................... 21 - -------------------------------------------------------------------------------- APPENDIX .................................................................. 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 Select (the "Fund") seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn International Select generally invests in the stocks of companies based in developed markets (for example, Japan, Canada and the United Kingdom) outside the United States. 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. Although the Fund primarily invests in small- and medium sized companies, at times the Fund may invest in larger-sized companies. 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 65% of its net assets (plus any borrowings for investment purposes) in the stocks of foreign companies based in developed markets outside the United States. 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) 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 is inherent in the Fund's investment strategy. 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 large portion of its assets invested in a particular sector. FOREIGN SECURITIES are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in EMERGING MARKETS are 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 team 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. 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 the life of the share class. 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 years and life of the share class. They include the effects of Fund expenses. The Fund's returns are compared to the S&P/Citigroup World ex-U.S. Cap Range $2-10 Billion Index (S&P/Citigroup Cap Range $2-10B). The S&P/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. - -------------------------------------------------------------------------------- CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1) - -------------------------------------------------------------------------------- [BAR CHART] 81.60% -13.35% -29.05% -14.89% 41.79% 24.14% 15.98% - --------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
(1) The Fund's performance in 1999 was achieved during a period of unusual market conditions. For the periods shown in bar chart: Best quarter: 4th quarter 1999, +46.65% Worst quarter: 3rd quarter 2001, -22.80% 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. - -------------------------------------------------------------------------------- ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005 - --------------------------------------------------------------------------------
LIFE OF THE SHARE CLASS 1 YEAR 5 YEARS SHARE CLASS (1)(2) Class Z (%) Return Before Taxes 15.98 4.27 11.25 Return After Taxes on Distributions 15.83 4.25 11.18 Return After Taxes on Distributions and Sale of Fund Shares 10.81 3.72 9.95 - --------------------------------------------------------------------------------------------------------------- INDEX S&P/Citigroup Cap Range $2-10B (%) 20.35 11.60 10.83(3)
(1) The Fund's performance during 1999 was achieved in a period of unusual market conditions. (2) The inception date for Class Z shares is November 23, 1998. (3) 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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. 5 THE FUND - -------------------------------------------------------------------------------- SHAREHOLDER FEES(1) (COMMISSIONS 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) (%) 0.94 - ------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - ------------------------------------------------------------------------------------------- Other expenses(2) (%) 0.55 - ------------------------------------------------------------------------------------------- Total annual fund operating expenses(2)(3) (%) 1.49
(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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses would be 1.45%, taking into consideration the adviser fee reimbursement discussed in footnote 3, below. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. (3) 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 the adviser on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class Z shares would be 1.45%, taking into consideration the waiver discussed in footnote 2, above. 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 - -------------------------------------------------------------------------------- EXAMPLE EXPENSES FOR A $10,000 INVESTMENT (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS $152 $471 $813 $1,779 See the Appendix for additional hypothetical investment and expense information. 6 YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described on page 8), 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 Management 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 Management Distributors, 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 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 Management 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 the Fund name and account number with a check made payable to the Fund and mailed to Columbia Management 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 Management Distributors, Inc. for shares of the same class or Class A shares of the Fund at no additional cost. There may be an additional sales 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 funds transfer account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - ---------------------------------------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 minimum) automatically from your bank investment plan 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. 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 shares of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. 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 Fund 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 with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any 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 a broker-dealer, bank, third-party administrator or other financial institution (each commonly referred to as 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. You may be asked to provide information, including account statements and other records, regarding your eligibility. 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 purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary; o Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Any investor purchasing through a Columbia Management Group, LLC state tuition plan 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. 8 YOUR ACCOUNT $1,000 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 Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD; o Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD; o Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary; o Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement); o Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an ACCREDITED INVESTOR, as defined under the Securities Act of 1933; or o Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. The Fund reserves the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. 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. 9 YOUR ACCOUNT SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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 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. 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 CMD 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 CMD that does not have a redemption fee (including Columbia Acorn Fund, Columbia Acorn USA, Columbia Acorn Select and Columbia Thermostat Fund), 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 CMD 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 CMD 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. 10 YOUR ACCOUNT 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- 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 financial day's price, your financial advisor 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 (only if Class Z is not offered) of another fund distributed by Columbia Management Distributors, 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 ManagementServices, 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 request. Be sure to complete the appropriate section of the account application for this feature. - --------------------------------------------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or 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. The $5,000 minimum account balance requirement has been waived for wrap accounts. 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 funds transfer 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.
11 YOUR ACCOUNT 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. 12 YOUR ACCOUNT Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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 Fund 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 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: 13 YOUR ACCOUNT 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 registered investment company 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. FINANCIAL INTERMEDIARY PAYMENTS - -------------------------------------------------------------------------------- The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.40% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. 14 YOUR ACCOUNT Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's Class Z share price 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 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 the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. 15 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 any 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, 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 16 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. 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 a 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. 17 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, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.94% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- CWAM uses a team to assist the 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 utilizing the management team's input and advice when making buy and sell determinations. CHRISTOPHER J. OLSON LEAD 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 the lead portfolio manager of 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 Statement of Additional Information provides additional information about Mr. Olson's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. 18 MANAGING THE FUND The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 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 19 OTHER INVESTMENTS STRATEGIES AND RISKS 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin 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 PRICE THAT IT BELIEVES WOULD ALSO MAKE SUSTAINABLE OVER TIME. MAINTAINING 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. DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- COLUMBIA ACORN INTERNATIONAL SELECT - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 Class Z Class Z Class Z Class Z Class Z NET ASSET VALUE -- BEGINNING OF PERIOD ($) 18.02 14.58 10.29 12.09 17.15 - ------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS ($) Net investment income (loss)(a) 0.13 0.04 0.06 0.03 (0.05) Net realized and unrealized gain (loss) 2.70 3.47 4.24 (1.83) (4.92) - ------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 2.83 3.51 4.30 (1.80) (4.97) - ------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.28) (0.07) (0.01) -- (0.01) From net realized gains -- -- -- -- (0.08) - ------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.28) (0.07) (0.01) -- (0.09) - ------------------------------------------------------------------------------------------------------------------------ REDEMPTION FEES Redemption fees added to paid in capital -- (a)(b) -- (a)(b) -- -- -- - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE -- END OF PERIOD ($) 20.57 18.02 14.58 10.29 12.09 - ------------------------------------------------------------------------------------------------------------------------ Total return (%)(c)(d) 15.98 24.14 41.79 (14.89) (29.05) - ------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA(%): Expenses(e) 1.45 1.45 1.45 1.45 1.45 Net investment income (loss)(e) 0.72 0.27 0.56 0.26 (0.32) Waiver/reimbursement 0.04 0.29 0.42 0.33 0.01 Portfolio turnover rate (%) 39 73 69 102 82 Net assets at end of period (in millions) ($) 74 46 34 26 37
(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 Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact. 21 APPENDIX - -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The table shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The table also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the table, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. - -------------------------------------------------------------------------------- COLUMBIA ACORN INTERNATIONAL SELECT -- CLASS Z SHARES - --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) --------- ----------------- --------------------- -------------------- ---------------------- -------------- 1 5.00% 1.49% 3.51% $10,351.00 $151.61 2 10.25% 1.49% 7.14% $10,714.32 $156.94 3 15.76% 1.49% 10.90% $11,090.39 $162.45 4 21.55% 1.49% 14.80% $11,479.67 $168.15 5 27.63% 1.49% 18.83% $11,882.60 $174.05 6 34.01% 1.49% 23.00% $12,299.68 $180.16 7 40.71% 1.49% 27.31% $12,731.40 $186.48 8 47.75% 1.49% 31.78% $13,178.27 $193.03 9 55.13% 1.49% 36.41% $13,640.83 $199.80 10 62.89% 1.49% 41.20% $14,119.62 $206.82 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,119.62 TOTAL ANNUAL FEES AND EXPENSES $1,779.48
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 22 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn International Select - -------------------------------------------------------------------------------- [LOGO] COLUMBIAFUNDS A MEMBER OF COLUMBIA MANAGEMENT (C) 2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.426.3750 WWW.COLUMBIAFUNDS.COM INT-36/109495-0306 Columbia Acorn International Select Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 Commissions and Other Expenses ........................................... 5 YOUR ACCOUNT 7 - -------------------------------------------------------------------------------- Choosing a Share Class ................................................... 7 How to Buy Shares ........................................................ 7 Investment Minimums ...................................................... 8 Sales Charges (Commissions) .............................................. 9 How to Exchange Shares ................................................... 14 How to Sell Shares ....................................................... 14 Fund Policy on Trading of Fund Shares .................................... 15 Other Information About Your Account ..................................... 18 BOARD OF TRUSTEES 20 - -------------------------------------------------------------------------------- MANAGING THE FUND 21 - -------------------------------------------------------------------------------- Investment Adviser ....................................................... 21 Portfolio Manager ........................................................ 21 Legal Proceedings ........................................................ 22 OTHER INVESTMENT STRATEGIES AND RISKS 23 - -------------------------------------------------------------------------------- The Information Edge ..................................................... 23 Long-Term Investing ...................................................... 23 Derivative Strategies .................................................... 24 Temporary Defensive Strategies ........................................... 24 FINANCIAL HIGHLIGHTS 25 - -------------------------------------------------------------------------------- APPENDIX 28 - -------------------------------------------------------------------------------- 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 (the "Fund") seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn International Select invests generally in the stocks of companies based in developed markets (for example, Japan, Canada and the United Kingdom) outside the United States. 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. Although the Fund primarily invests in small- and medium-sized companies, at times the Fund may invest in larger-size companies. 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 65% of its net assets in the stocks of foreign companies based in developed markets outside the United States. 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 is inherent in the Fund's investment strategy. 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 large portion of its assets invested in a particular sector. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in emerging markets are 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 team 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. 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, five years and the life of the share class. 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 Class commenced operations. They include the effects of Fund expenses, but not the effects of sales charges paid directly by the shareholder. 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, five years and the life of the share class. 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 (Commissions)." The Fund's returns are compared to the S&P/Citigroup World ex-U.S. Cap Range $2-10 Billion Index (S&P/Citigroup Cap Range 2-10B). The S&P/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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 1996 -- 1997 -- 1998 -- 1999 -- 2000 -- 2001 -29.17% 2002 -15.16% 2003 41.11% 2004 23.76% 2005 15.60% 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, 2005(1) - --------------------------------------------------------------------------------
Life of the Share Class 1 Year 5 Years Share Class(2) Class A (%) Return Before Taxes 8.95 2.72 1.97 Return After Taxes on Distributions 8.86 2.72 1.97 Return After Taxes on Distributions and Sale of Fund Shares 6.17 2.38 1.73 - ---------------------------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes 9.97 2.88 2.27 Return After Taxes on Distributions 9.97 2.91 2.30 Return After Taxes on Distributions and Sale of Fund Shares 6.77 2.53 2.00 - ---------------------------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 13.77 3.21 2.43 Return After Taxes on Distributions 13.78 3.24 2.46 Return After Taxes on Distributions and Sale of Fund Shares 9.22 2.81 2.14 - ---------------------------------------------------------------------------------------------------------------- Index S&P/Citigroup Cap Range $2-10B (%) 20.35 11.60 11.78(3)
(1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the Investment Adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) The inception date for Class A, Class B and Class C shares is October 16, 2000. (3) Performance information is from October 16, 2000. COMMISSIONS AND OTHER EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the commissions and other expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges (Commissions) are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor, who compensates your financial advisor. 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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- 5 The Fund - -------------------------------------------------------------------------------- Shareholder Fees(1) (commissions 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 12 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) (%) 0.94 0.94 0.94 - ---------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - ---------------------------------------------------------------------------------------------- Other expenses(2) (%) 0.61 0.79 0.67 - ---------------------------------------------------------------------------------------------- Total annual fund operating expenses(2)(3) (%) 1.80 2.58 2.61
(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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses for Classes A, B and C would be 1.70%, 2.30% and 2.45%, respectively, taking into consideration the adviser fee reimbursement discussed in footnote 3, below. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. (3) 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 the Fund's adviser on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class A, B and C shares would be 1.70%, 2.30% and 2.45%, respectively, taking into consideration the waiver discussed in footnote 2, above. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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: $747 $ 1,109 $1,494 $2,569 - ----------------------------------------------------------------------------------------------------- Class B: did not sell your shares $261 $ 802 $1,370 $2,725 sold all your shares at the end of the period $761 $ 1,102 $1,570 $2,725 - ----------------------------------------------------------------------------------------------------- Class C: did not sell your shares $264 $ 811 $1,385 $2,944 sold all your shares at the end of the period $364 $ 811 $1,385 $2,944
See the Appendix for additional hypothetical investment and expense information. 6 Your Account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- The Fund offers multiple classes of shares. This prospectus offers shares of three classes - Class A, Class B and Class C. Each of those share classes has its own commission and expense structure that affects the investment return of that class. Determining which share class is best for you depends on various factors, including the amount you are investing, how long you expect to hold your investment and your personal situation. You should consult with your financial advisor before deciding which share class is most appropriate for you. The following considerations should be part of your assessment: o You will pay a commission if you buy Class A, B or C shares, either at the time of investment or redemption, or through ongoing distribution commission payments ("Rule 12b-1 fees") made from your investment over time, or both. o Class A shares require an up-front commission payment, but pay lower ongoing Rule 12b-1 fees than Class B and Class C shares. Class B and Class C shares have no up-front commission paid by the shareholder but pay higher ongoing commissions (Rule 12b-1 fees), and a deferred commission is imposed on a redemption of Class B shares within six years after purchase. The differential between classes will vary depending on the actual investment return for any given period. o Class A shares are generally more advantageous to an investor who intends to hold the shares for several years and invests an amount large enough to qualify for a reduced rate of initial sales commission, taking into account the commissions you may pay when redeeming shares of other classes. Class A shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.25% of the average value of the shares. o Class B shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.85% of the average value of the shares and automatically convert to Class A shares after eight years. A Class B shareholder of the Fund whose account has a value of less than $50,000 (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares) may purchase additional Class B shares of the Fund to increase the account value up to a maximum of $49,999; any additional investment by the shareholder in that Fund will be invested in Class A shares of the Fund, without regard to the normal investment minimum for Class A shares, but will be subject to the applicable Class A shares up-front commission. o Class C shares are generally more advantageous to an investor who intends to hold shares for only a few years. Class C shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 1.00% of the average value of the shares. o If you invest $1 million or more you can purchase Class A shares but not Class C shares. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other eligible investors. Class Z shares are offered by a separate prospectus. HOW TO BUY SHARES - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- The investment minimum for initial investments (by purchase, exchange or certain transfers) of Class A, B and C shares is $1,000. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. For participants in the Automatic Investment Plan the initial investment minimum is $50. For participants in certain retirement plans the initial investment minimum is $25. There is no minimum investment for wrap accounts. 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. Please see the Statement of Additional Information for more details on investment minimums. - -------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -------------------------------------------------------------------------------- Method Instructions Through your Your financial advisor can help you establish financial advisor your account and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application (new account) and check made payable to the Fund to the transfer agent, Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the (existing account) additional investment stub included in your account statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund and mailed to Columbia Management 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 Management Distributors, 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 sales charge if exchanging from a money market fund. An exchange to another fund may incur a sales charge if the original purchase was not assessed a sales charge. 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 funds transfer electronically transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments investment plan ($50 minimum) automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar cost You may purchase shares of the Fund for your averaging account by exchanging $100 or more each 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 diversification You may automatically invest dividends distributed by another fund into the same class of shares (and, in some cases, certain other classes) of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your dividends in the Fund, call 1-800-345-6611. 8 Your Account SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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. 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 sales and marketing fees (commissions) 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. The annual fee, as a percentage of the value of the shares, is normally 0.25% for Class A, 0.85% for Class B and 1.00% for Class C shares. These fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the Rule 12b-1 fee thereafter. Financial Intermediary Payments The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their 9 Your Account affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. Class A shares Your purchases of Class A shares are made at the public offering price. 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 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
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 it distributes. Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-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. 10 Your Account For Class A share purchases of $1 million or more by certain group retirement plans, 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 $50 million 0.50 - -------------------------------------------------------------------------------- $50 million or more 0.25 For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million. - -------------------------------------------------------------------------------- UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (COMMISSIONS) 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 (Commissions) 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. 11 Your Account 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. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend 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 advisor's 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 Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into other Columbia funds, as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. 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, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. 12 Your Account Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases in Class B shares may not result in the account holding $50,000 or more of Class B shares (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares). In the event that an existing Class B shareholder seeks to add funds to such an account in excess of $49,999, the amount in excess may be invested in Class A shares without the imposition of the minimum investment requirement for Class A shares. Such purchases of Class A shares will be subject to the applicable sales load imposed on such purchases. See "Class A Sales Charges" on page 10. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold within six years of purchase. The CDSC declines over the six years and disappears in the seventh year. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart 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 $50,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) 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 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. Up-front commission to financial advisors is 4.00% and is paid by the distributor. In addition, from the annual fee of 0.85% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, the distributor receives 0.60% of the value of the shares for each of the first eight years, or an aggregate 4.80% over eight years, which will offset the commission it paid to your financial advisor. Your financial advisor is paid the remaining 0.25% as an ongoing commission for the life of your investment. The conversion of Class B shares to Class A shares occurs automatically eight years after purchase. 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 your purchases of Class C shares, for which the distributor is repaid from the ongoing annual fee of 1.00% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, which is higher than the Rule 12b-1 fees borne by Class A and Class B shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. 13 Your Account 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. 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 Management Distributors, 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 Management Distributors, 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. Exchanges of Class B shares for Class B shares of another fund distributed by Columbia Management Distributors, Inc. in amounts of $50,000 or more are still permitted. 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. 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 financial advisor order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into the same share class (and, in some cases, certain other classes) of another fund distributed by Columbia Management Distributors, 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, if applicable, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. ------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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 Fund 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 16 Your Account 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 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 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 registered investment company 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. 17 Your Account 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 the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. 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. 18 Your Account Distribution Options The Fund distributes any 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, 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. 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 a credit or deduction on your tax return for your share of foreign taxes paid by the Fund. 19 - -------------------------------------------------------------------------------- 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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. 20 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.94% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- CWAM uses a team to assist the 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 utilizing the management team's input and advice when making buy and sell determinations. Chris Olson Lead 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 the lead portfolio manager of 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 Statement of Additional Information provides additional information about Mr. Olson's compensation, other accounts he manages and his ownership of securities in the Fund. 21 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 22 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 small- 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin 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 superior performance that is objectives and is important to maintaining it 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. 23 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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. 24 Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years for its Class A, Class B and Class C shares fiscal, which run from January 1 to December 31. 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Acorn International Select - --------------------------------------------------------------------------------
Year ended December 31, 2005 2004 2003 2002 2001 Class A Class A Class A Class A Class A ------- ------- ------- ------- -------- Net asset value -- Beginning of period ($) 17.85 14.45 10.24 12.07 17.15 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment income (loss)(a) 0.06 (0.00)(b) 0.03 (0.01) (0.09) Net realized and unrealized gain (loss) 2.69 3.43 4.18 (1.82) (4.90) - ------------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 2.75 3.43 4.21 (1.83) (4.99) - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net investment income (0.24) (0.03) -- -- (0.01) From net realized gains -- -- -- -- (0.08) - ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.24) (0.03) -- -- (0.09) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 20.36 17.85 14.45 10.24 12.07 - ------------------------------------------------------------------------------------------------------------------------------------ Total return (%)(c)(d) 15.60 23.76 41.11 (15.16) (29.17) - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data (%): Expenses(e) 1.70 1.75 1.80 1.80 1.80 Net investment income (loss)(e) 0.34 (0.03) 0.24 (0.09) (0.67) Waiver/reimbursement 0.10 0.37 0.44 0.33 0.23 Portfolio turnover rate (%) 39 73 69 102 82 Net assets at end of period (000's)($) 10,219 4,357 2,557 2,612 2,861
(a) Per share data was calculated using average shares outstanding during the period. (b) Rounds to less than $(0.01) per share. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact. 25 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn International Select - --------------------------------------------------------------------------------
Year ended December 31, 2005 2004 2003 2002 2001 Class B Class B Class B Class B Class B ------- ------- ------- ------- -------- Net asset value -- Beginning of period ($) 17.36 14.12 10.08 11.96 17.13 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(s) (0.03) (0.10) (0.06) (0.08) (0.18) Net realized and unrealized gain (loss) 2.61 3.34 4.10 (1.80) (4.90) - ------------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 2.58 3.24 4.04 (1.88) (5.08) - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net investment income (0.14) -- -- -- (0.01) From net realized gains -- -- -- -- (0.08) - ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.14) -- -- -- (0.09) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 19.80 17.36 14.12 10.08 11.96 - ------------------------------------------------------------------------------------------------------------------------------------ Total return (%)(b)(c) 14.97 22.95 40.08 (15.72) (29.73) - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 2.30 2.38 2.45 2.45 2.45 Net investment loss(d) (0.16) (0.66) (0.52) (0.74) (1.32) Waiver/reimbursement 0.28 0.58 0.44 0.33 0.23 Portfolio turnover rate (%) 39 73 69 102 82 Net assets at end of period (000's) ($) 6,594 5,097 3,162 1,835 2,069
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 26 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn International Select - --------------------------------------------------------------------------------
Year ended December 31, 2005 2004 2003 2002 2001 Class C Class C Class C Class C Class C ------- ------- ------- ------- -------- Net asset value -- Beginning of period ($) 17.38 14.14 10.09 11.97 17.14 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(a) (0.05) (0.11) (0.05) (0.08) (0.18) Net realized and unrealized gain (loss) 2.60 3.35 4.10 (1.80) (4.90) - ------------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 2.55 3.24 4.05 (1.88) (5.08) - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net investment income (0.13) -- -- -- (0.01) From net realized gains -- -- -- -- (0.08) - ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.13) -- -- -- (0.09) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 19.80 17.38 14.14 10.09 11.97 - ------------------------------------------------------------------------------------------------------------------------------------ Total return (%)(b)(c) 14.77 22.91 40.14 (15.71) (29.71) - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data (%): Expenses(d) 2.45 2.45 2.45 2.45 2.45 Net investment loss(d) (0.30) (0.73) (0.41) (0.74) (1.32) Waiver/reimbursement 0.17 0.35 0.44 0.33 0.23 Portfolio turnover rate (%) 39 73 69 102 82 Net assets at end of period (000's) ($) 4,083 2,543 3,691 2,915 3,885
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 27 APPENDIX - -------------------------------------------------------------------------------- Hypothetical Investment and Expense Information - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The tables show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The tables also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the tables and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher. - -------------------------------------------------------------------------------- Columbia Acorn International Select -- Class A Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.80% -2.73%(2) $ 9,726.60 $ 747.36 2 10.25% 1.80% 0.38% $ 10,037.85 $ 177.88 3 15.76% 1.80% 3.59% $ 10,359.06 $ 183.57 4 21.55% 1.80% 6.91% $ 10,690.55 $ 189.45 5 27.63% 1.80% 10.33% $ 11,032.65 $ 195.51 6 34.01% 1.80% 13.86% $ 11,385.69 $ 201.77 7 40.71% 1.80% 17.50% $ 11,750.04 $ 208.22 8 47.75% 1.80% 21.26% $ 12,126.04 $ 214.88 9 55.13% 1.80% 25.14% $ 12,514.07 $ 221.76 10 62.89% 1.80% 29.15% $ 12,914.52 $ 228.86 Total Gain After Fees and Expenses $ 2,914.52 Total Annual Fees and Expenses $ 2,569.26
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. (2) Reflects deduction of the maximum initial sales charge. 28 Appendix - -------------------------------------------------------------------------------- Columbia Acorn International Select -- Class B Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 2.58% 2.42% $ 10,242.00 $ 261.12 2 10.25% 2.58% 4.90% $ 10,489.86 $ 267.44 3 15.76% 2.58% 7.44% $ 10,743.71 $ 273.91 4 21.55% 2.58% 10.04% $ 11,003.71 $ 280.54 5 27.63% 2.58% 12.70% $ 11,270.00 $ 287.33 6 34.01% 2.58% 15.43% $ 11,542.73 $ 294.28 7 40.71% 2.58% 18.22% $ 11,822.07 $ 301.41 8 47.75% 2.58% 21.08% $ 12,108.16 $ 308.70 9 55.13% 1.80% 24.96% $ 12,495.62 $ 221.43 10 62.89% 1.80% 28.95% $ 12,895.48 $ 228.52 Total Gain After Fees and Expenses $ 2,895.48 Total Annual Fees and Expenses $ 2,724.69
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 29 Appendix - -------------------------------------------------------------------------------- Columbia Acorn International Select -- Class C Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 2.61% 2.39% $ 10,239.00 $ 264.12 2 10.25% 2.61% 4.84% $ 10,483.71 $ 270.43 3 15.76% 2.61% 7.34% $ 10,734.27 $ 276.89 4 21.55% 2.61% 9.91% $ 10,990.82 $ 283.51 5 27.63% 2.61% 12.54% $ 11,253.50 $ 290.29 6 34.01% 2.61% 15.22% $ 11,522.46 $ 297.23 7 40.71% 2.61% 17.98% $ 11,797.85 $ 304.33 8 47.75% 2.61% 20.80% $ 12,079.82 $ 311.60 9 55.13% 2.61% 23.69% $ 12,368.52 $ 319.05 10 62.89% 2.61% 26.64% $ 12,664.13 $ 326.68 Total Gain After Fees and Expenses $ 2,664.13 Total Annual Fees and Expenses $ 2,944.13
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 30 - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn International Select - -------------------------------------------------------------------------------- [COLUMBIAFUNDS(R) LOGO] ColumbiaFunds A Member of Columbia Management (C) 2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com INT-36/109589-0306 COLUMBIA ACORN SELECT Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 (Commissions) ................................................ 10 How to Exchange Shares ..................................................... 10 How to Sell Shares ......................................................... 10 Fund Policy on Trading of Fund Shares ...................................... 11 Financial Intermediary Payments ............................................ 13 Other Information About Your Account ....................................... 14 BOARD OF TRUSTEES 16 - -------------------------------------------------------------------------------- MANAGING THE FUND 16 - -------------------------------------------------------------------------------- Investment Adviser ......................................................... 16 Portfolio Manager .......................................................... 16 Legal Proceedings .......................................................... 17 OTHER INVESTMENT STRATEGIES AND RISKS 18 - -------------------------------------------------------------------------------- The Information Edge ....................................................... 18 Long-Term Investing ........................................................ 19 Derivative Strategies ...................................................... 19 Temporary Defensive Strategies ............................................. 19 FINANCIAL HIGHLIGHTS 20 - -------------------------------------------------------------------------------- APPENDIX 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 Select (the "Fund") 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. The Fund invests the majority of its assets in U.S. companies, but also may invest up to 25% of its assets, valued at the time of investment, in companies outside the United States in developed markets (for example, Japan, Canada and the 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) 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 2 THE FUND 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. SECTOR RISK is inherent in the Fund's investment strategy. 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 large 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 team 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. FOREIGN SECURITIES are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in EMERGING MARKETS are 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. 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 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 the life of the share class. 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 years and life of the share class. They include the effects of Fund expenses. The Fund's returns are compared to the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index). The S&P MidCap 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. - -------------------------------------------------------------------------------- CALENDAR YEAR TOTAL RETURNS (CLASS Z) - -------------------------------------------------------------------------------- [BAR CHART] 29.30% 11.68% 8.00% -7.81% 30.61% 18.58% 11.08% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 For the periods shown in bar chart: Best quarter: 4th quarter 2001, +17.57% Worst quarter: 3rd quarter 2001, -11.34% 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, 2005 - --------------------------------------------------------------------------------
LIFE OF THE SHARE CLASS 1 YEAR 5 YEARS SHARE CLASS (1) Class Z (%) Return Before Taxes 11.08 11.36 14.69 Return After Taxes on Distributions 10.58 11.15 14.16 Return After Taxes on Distributions and Sale of Fund Shares 7.84 9.91 12.84 - ----------------------------------------------------------------------------------------------------- INDEX S&P MidCap 400 Index (%) 12.56 8.60 12.17 (2)
(1) The inception date for Class Z shares is November 23, 1998. (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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (1) (COMMISSIONS 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. 5 THE FUND - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS) - -------------------------------------------------------------------------------- Management fees (1) (%) 0.82 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses (2) (%) 0.19 - -------------------------------------------------------------------------------- Total annual fund operating expenses (2)(3) (%) 1.01 (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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses would be 0.99%. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. (3) 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 the Fund's adviser on 30 days' notice. 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 + For example only, since the minimum initial investment in the Fund is $50,000, subject to certain exceptions described in the section "Eligible Investors" on page 8. - -------------------------------------------------------------------------------- EXAMPLE EXPENSES FOR A $10,000 INVESTMENT (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS $103 $322 $558 $1,236 See the Appendix for additional hypothetical investment and expense information. 6 YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described on page 8), 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 Management 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 Management Distributors, 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 financial advisor and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and check (new account) made payable to the Fund to Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your account statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund and mailed to Columbia Management 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 Management Distributors, Inc. for shares of the same class or Class A shares of the Fund at no additional cost. There may be an additional sales 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic fund 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 investment plan minimum) automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. You may terminate your program or change the amount of the exchange (subject to the $100 minimum) by calling 1-800-345-6611. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by diversification another fund into the same class of shares of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. 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 Fund 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 with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any 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 a broker-dealer, bank, third-party administrator or other financial institution (each commonly referred to as 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. You may be asked to provide information, including account statements and other records, regarding your eligibility. Eligible Investors and their applicable investment minimums are as follows: NO MINIMUM INITIAL INVESTMENT o Any trustee or director (or family member of a trustee or director) of Columbia Acorn Trust; o An employee (or family member of an employee) of Columbia Wanger Asset Management, L.P.; o Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; or o Any investor purchasing through a Columbia Management, LLC state tuition plan organized under Section 529 of the Internal Revenue Code. $50,000 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 Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD; o Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD (other than Columbia Acorn Funds); 8 YOUR ACCOUNT o Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary; o Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $50,000 minimum investment requirement); o Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, 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; o Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an ACCREDITED INVESTOR, as defined under the Securities Act of 1933; or o Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. The Fund reserves the right to change the criteria for eligible investors and the investment minimums. For accounts opened prior to August 5, 2005, minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. 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. 9 YOUR ACCOUNT SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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 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. 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 CMD 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 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 - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" 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. 10 YOUR ACCOUNT 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES: - -------------------------------------------------------------------------------- METHOD INSTRUCTIONS Through your You may call your financial advisor to place your sell financial advisor order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into Class Z shares or Class A shares (only if Class Z is not offered) of another fund distributed by Columbia Management Distributors, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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 11 YOUR ACCOUNT 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 12 YOUR ACCOUNT FINANCIAL INTERMEDIARY PAYMENTS - -------------------------------------------------------------------------------- The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.40% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. 13 YOUR ACCOUNT OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's Class Z share price 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 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 subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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 - -------------------------------------------------------------------------------- Represents interest and dividends earned from securities held Dividends 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 any 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. 14 YOUR ACCOUNT 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, 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. 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. 15 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.82% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. 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 manager is responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. BEN ANDREWS LEAD PORTFOLIO MANAGER 16 MANAGING THE FUND 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 Statement of Additional Information provides additional information about Mr. Andrews' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' claims. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. 17 MANAGING THE FUND In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. - -------------------------------------------------------------------------------- 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 smaller and mid-sized 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 growth potential and financial o innovative marketing o adequate working capital strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin 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. - -----------------------------------------------------------------------------------------------------------------------
18 OTHER INVESTMENTS STRATEGIES AND RISKS 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. DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- COLUMBIA ACORN SELECT - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 Class Z Class Z Class Z Class Z Class Z --------- ----------- ---------- ---------- ---------- NET ASSET VALUE -- BEGINNING OF PERIOD ($) 21.13 18.20 14.04 15.23 14.13 - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS ($) Net investment loss(a) (0.03) (0.10) (0.10) (0.10) (0.05) Net realized and unrealized gain (loss) 2.35 3.47 4.39 (1.09) 1.18 - -------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.32 3.37 4.29 (1.19) 1.13 - -------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net realized gains (0.68) (0.44) (0.13) -- (0.03) - -------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.68) (0.44) (0.13) -- (0.03) - -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD ($) 22.77 21.13 18.20 14.04 15.23 - -------------------------------------------------------------------------------------------------------------------------- Total return (%)(b) 11.08(c) 18.58 (c) 30.61 (7.81) (c) 8.00 (c) - -------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses 0.99 (d) 1.13 (d) 1.12 (d) 1.26 (d) 1.35 Net investment loss (0.16)(d) (0.52) (d) (0.63) (d) (0.67) (d) (0.44) Waiver/reimbursement 0.03 0.02 -- 0.01 0.03 Portfolio turnover rate (%) 19 34 16 40 82 Net assets at end of period (in millions) ($) 688 445 294 93 70
(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 Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 20 APPENDIX - -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The table shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The table also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the table, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. As noted previously, the Fund's minimum investment for initial purchases or exchanges is $50,000. - -------------------------------------------------------------------------------- COLUMBIA ACORN SELECT -- CLASS Z SHARES - --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ---- --------------- -------------- --------------- --------------- ------------- 1 5.00% 1.01% 3.99% $10,399.00 $ 103.01 2 10.25% 1.01% 8.14% $10,813.92 $ 107.13 3 15.76% 1.01% 12.45% $11,245.40 $ 111.40 4 21.55% 1.01% 16.94% $11,694.09 $ 115.84 5 27.63% 1.01% 21.61% $12,160.68 $ 120.47 6 34.01% 1.01% 26.46% $12,645.89 $ 125.27 7 40.71% 1.01% 31.50% $13,150.46 $ 130.27 8 47.75% 1.01% 36.75% $13,675.17 $ 135.47 9 55.13% 1.01% 42.21% $14,220.81 $ 140.87 10 62.89% 1.01% 47.88% $14,788.22 $ 146.50 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,788.22 TOTAL ANNUAL FEES AND EXPENSES $1,236.24
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 21 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 22 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn Select - -------------------------------------------------------------------------------- [LOGO] COLUMBIAFUNDS A MEMBER OF COLUMBIA MANAGEMENT (C) 2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.426.3750 WWW.COLUMBIAFUNDS.COM INT-36/109494-0306 Columbia Acorn Select Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 Commissions and Other Expenses ........................................... 6 YOUR ACCOUNT 8 - -------------------------------------------------------------------------------- Choosing a Share Class ................................................... 8 How to Buy Shares ........................................................ 8 Investment Minimums ...................................................... 9 Sales Charges (Commissions) .............................................. 10 How to Exchange Shares ................................................... 15 How to Sell Shares ....................................................... 15 Fund Policy on Trading of Fund Shares .................................... 16 Other Information About Your Account ..................................... 17 BOARD OF TRUSTEES 20 - -------------------------------------------------------------------------------- MANAGING THE FUND 20 - -------------------------------------------------------------------------------- Investment Adviser ....................................................... 20 Portfolio Manager ........................................................ 21 Legal Proceedings ........................................................ 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 - -------------------------------------------------------------------------------- The Information Edge ..................................................... 23 Long-Term Investing ...................................................... 23 Derivative Strategies .................................................... 24 Temporary Defensive Strategies ........................................... 24 FINANCIAL HIGHLIGHTS 25 - -------------------------------------------------------------------------------- APPENDIX 28 - -------------------------------------------------------------------------------- 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 Back Guarantee ----------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn Select (the "Fund") 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 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. The Fund invests the majority of its assets in U.S. companies, but also may invest up to 25% of its assets, valued at the time of investment, in companies outside the United States in developed markets (for example, Japan, Canada and the 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 2 The Fund 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. Sector risk is inherent in the Fund's investment strategy. 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 large 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 team 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. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. Investments in emerging markets are 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. 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, five years and the life of the share class. 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 Class commenced operations. They include the effects of Fund expenses, but not the effects of sales charges paid directly by a shareholder. 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, five years and the life of the share class. 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 (Commissions)." 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 1996 -- 1997 -- 1998 -- 1999 -- 2000 -- 2001 7.65% 2002 -8.17% 2003 29.95% 2004 18.16% 2005 10.78% 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, 2005(1) - --------------------------------------------------------------------------------
Life of the Share Class 1 Year 5 Years Share Class(2) Class A (%) Return Before Taxes 4.41 9.65 10.52 Return After Taxes on Distributions 4.00 9.46 10.28 Return After Taxes on Distributions and Sale of Fund Shares 3.40 8.38 9.14 - -------------------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes 5.01 9.93 10.90 Return After Taxes on Distributions 4.60 9.74 10.66 Return After Taxes on Distributions and Sale of Fund Shares 3.78 8.63 9.48 - -------------------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 8.91 10.18 11.00 Return After Taxes on Distributions 8.50 9.99 10.77 Return After Taxes on Distributions and Sale of Fund Shares 6.31 8.86 9.57 - -------------------------------------------------------------------------------------------------------- Index S&P Mid Cap 400 Index (%) 12.56 8.60 8.91(3)
(1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the Investment Adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) The inception date for Class A, Class B and Class C shares is October 16, 2000. (3) Performance information is from October 16, 2000. 5 The Fund COMMISSIONS AND OTHER EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the commissions and other expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges (Commissions) are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor, who compensates your financial advisor. 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, 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 will likely incur portfolio transaction costs that are in addition to the total annual fund operating 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. Higher transaction costs reduce the Fund's returns. - -------------------------------------------------------------------------------- 6 The Fund - -------------------------------------------------------------------------------- Shareholder Fees(1) (commissions 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 12 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) - --------------------------------------------------------------------------------
Class A Class B Class C Management fees(1) (%) 0.82 0.82 0.82 - -------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - -------------------------------------------------------------------------------------------------------------- Other expenses(2) (%) 0.21 0.34 0.28 - -------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses(2) (3) (%) 1.28 2.01 2.10
(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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) The Fund's adviser and/or affiliates have voluntarily agreed to waive a portion of "Other expenses." If this waiver were reflected in the table, total annual fund operating expenses for Classes A, B and C would be 1.26%, 1.99% and 2.08%, respectively. This arrangement may be modified or terminated by the Fund's adviser and/or its affiliates at any time. (3) 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 the Fund's adviser on 30 days' notice. - -------------------------------------------------------------------------------- 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 + For example only, since the minimum initial investment in the Fund is $50,000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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: $ 698 $ 958 $ 1,237 $ 2,031 - -------------------------------------------------------------------------------- Class B: did not sell your shares $ 204 $ 630 $ 1,083 $ 2,150 sold all your shares at the end of the period $ 704 $ 930 $ 1,283 $ 2,150 - -------------------------------------------------------------------------------- Class C: did not sell your shares $ 213 $ 658 $ 1,129 $ 2,431 sold all your shares at the end of the period $ 313 $ 658 $ 1,129 $ 2,431 See the Appendix for additional hypothetical and expense information. 7 Your Account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers multiple classes of shares. This prospectus offers shares of three classes - Class A, Class B and Class C. Each of those share classes has its own commission and expense structure that affects the investment return of that class. Determining which share class is best for you depends on various factors, including the amount you are investing, how long you expect to hold your investment and your personal situation. You should consult with your financial advisor before deciding which share class is most appropriate for you. The following considerations should be part of your assessment: o You will pay a commission if you buy Class A, B or C shares, either at the time of investment or redemption, or through ongoing distribution commission payments ("Rule 12b-1 fees") made from your investment over time, or both. o Class A shares require an up-front commission payment, but pay lower ongoing Rule 12b-1 fees than Class B and Class C shares. Class B and Class C shares have no up-front commission paid by the shareholder but pay higher ongoing commissions (Rule 12b-1 fees), and a deferred commission is imposed on a redemption of Class B shares within six years after purchase. The differential between classes will vary depending on the actual investment return for any given period. o Class A shares are generally more advantageous to an investor who intends to hold the shares for several years and invests an amount large enough to qualify for a reduced rate of initial sales commission, taking into account the commissions you may pay when redeeming shares of other classes. Class A shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.25% of the average value of the shares. o Class B shares are no longer offered to new investors. A Class B shareholder of the Fund whose account has a value of less than $50,000 (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares) may purchase additional Class B shares of the Fund to increase the account value up to a maximum of $49,999; any additional investment by the shareholder in that Fund will be invested in Class A shares of the Fund, without regard to the normal investment minimum for Class A shares, but will be subject to the applicable Class A shares up-front commission. Class B shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.85% of the average value of the shares and automatically convert to Class A shares after eight years. o Class C shares are generally more advantageous to an investor who intends to hold shares for only a few years. Class C shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 1.00% of the average value of the shares. o If you invest $1 million or more you can purchase Class A shares but not Class C shares. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other eligible investors. Class Z shares are offered by a separate prospectus. HOW TO BUY SHARES - -------------------------------------------------------------------------------- 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 8 Your Account 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 - -------------------------------------------------------------------------------- The investment minimum for initial investments (by purchase, exchange or certain transfers) of Class A, B and C shares is $50,000. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. For participants in the Automatic Investment Plan the initial investment minimum is $50. For participants in certain retirement plans the initial investment minimum is $25. 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. Please see the Statement of Additional Information for more details on investment minimums. - -------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -------------------------------------------------------------------------------- Method Instructions Through your Your financial advisor can help you establish your account financial advisor and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and check made (new account) payable to the Fund to the transfer agent, Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your account statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, 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 sales charge if exchanging from a money market fund. An exchange to another fund may incur a sales charge if the original purchase was not assessed a sales charge. 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 minimum) investment plan automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. 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 diversification fund into the same class of shares (and, in some cases, certain other classes) of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your dividends in the Fund, call 1-800-345-6611. 9 Your Account SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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. 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 sales and marketing fees (commissions) 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. The annual fee, as a percentage of the value of the shares, is normally equal up to 0.25% for Class A, 0.85% for Class B and 1.00% for Class C shares. These fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the Rule 12b-1 fee thereafter. Financial Intermediary Payments The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. 10 Your Account You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. Class A shares Your purchases of Class A shares are made at the public offering price. 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 in the Fund, trade on an omnibus basis and were invested in the Fund prior to August 5, 2005 are subject to the $50,000 investment minimum. ** Initial purchases of less than $50,000 are no longer accepted. However, for accounts opened prior to August 5, 2005, subsequent investments that do not meet the Fund's current investment minimum will be accepted. 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 it distributes. Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-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. 11 Your Account For Class A share purchases of $1 million or more by certain group retirement plans, 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 $50 million 0.50 - -------------------------------------------------------------------------------- $50 million or more 0.25 For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million. - -------------------------------------------------------------------------------- UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (COMMISSIONS) 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 ("Commissions") 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. 12 Your Account 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. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend 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 advisor's 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 Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into other Columbia funds, as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. 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, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Class B shares Your purchases of Class B shares are at Class B's net asset value. No new Class B share accounts may be established in the Fund. However, Class B share accounts established prior to August 5, 2005, may 13 Your Account nonetheless purchase additional Class B shares, so long as those purchases do not result in the account holding $50,000 or more of Class B shares (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares). In the event that an existing Class B shareholder seeks to add funds to such an account in excess of $49,999, the amount in excess may be invested in Class A shares without the imposition of the minimum investment requirement for Class A shares. Such purchases of Class A shares will be subject to the applicable sales load imposed on such purchases. See "Class A Sales Charges" on page 11. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold within six years of purchase. The CDSC declines over the six years and disappears in the seventh year. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart 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 $50,000(1): - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(2) 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 (1) Only applicable to accounts opened prior to August 5, 2005. (2) Applied to the net asset value at the time of purchase or sale, whichever is lower. Up-front commission to financial advisors is 4.00% and is paid by the distributor. In addition, from the annual fee of 0.85% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, the distributor receives 0.60% of the value of the shares for each of the first eight years, or an aggregate 4.80% over eight years, which will offset the commission it paid to your financial advisor. Your financial advisor is paid the remaining 0.25% as an ongoing commission for the life of your investment. The conversion of Class B shares to Class A shares occurs automatically eight years after purchase. 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 your purchase of Class C shares, for which the distributor is repaid from the ongoing annual fee of 1.00% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, which is higher than the Rule 12b-1 fees borne by Class A and Class B shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. 14 Your Account 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. 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 Management Distributors, 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 Management Distributors, 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. Exchanges of Class B shares for Class B shares of another fund distributed by Columbia Management Distributors, Inc. in amounts of $50,000 or more are still permitted. 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. 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. financial advisor To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into the same share class (and, in some cases, certain other classes) of another fund distributed by Columbia Management Distributors, 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, if applicable, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. 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 funds transfer be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 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. 17 Your Account 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 are unavailable, or when the adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. - -------------------------------------------------------------------------------- 18 Your Account Distribution Options The Fund distributes any 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, 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. 19 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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 and is responsible for the Fund's management, subject to the oversight of 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. (WAM). CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.82% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. 20 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 manager is responsible for making daily investment decisions, and utilizing 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 Statement of Additional Information provides additional information about Mr. Andrews' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders 21 Managing the Fund of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 22 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 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 to growth potential o innovative marketing o adequate working capital and financial strength o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives Once CWAM uncovers an attractive potential would likely produce management greater flexibility to company, it identifies a price superior performance that is pursue strategic objectives and is that it believes would also make sustainable over time. important to maintaining a competitive the stock a good value. advantage. - ------------------------------- --------------------------------------- ----------------------------------
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. 23 Other Investments Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures, options, straddles or similar transactions, 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. 24 Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years for its Class A, Class B and Class C shares, which run from January 1 to December 31. 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 years ended December 31, 2004 and 2005 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, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Acorn Select - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class A Class A Class A Class A Class A Net asset value -- Beginning of period ($) 20.83 18.01 13.93 15.17 14.12 - ------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(a) (0.09) (0.16) (0.20) (0.16) (0.10) Net realized and unrealized gain (loss) 2.32 3.42 4.37 (1.08) 1.18 - ------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 2.23 3.26 4.17 (1.24) 1.08 - ------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net realized gains (0.59) (0.44) (0.09) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.59) (0.44) (0.09) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 22.47 20.83 18.01 13.93 15.17 - ------------------------------------------------------------------------------------------------------------------------ Total Return (%)(b) 10.78(c) 18.16(c) 29.95 (8.17)(c) 7.65(c) - ------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data (%): Expenses 1.26(d) 1.47(d) 1.63(d) 1.70(d) 1.70 Net investment loss (0.42)(d) (0.86)(d) (1.15)(d) (1.11)(d) (0.79) Waiver/reimbursement 0.03 0.02 -- 0.10 0.18 Portfolio turnover rate (%) 19 34 16 40 82 Net assets at end of period (000's) ($) 744,178 515,842 264,679 31,742 11,900
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 25 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn Select - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class B Class B Class B Class B Class B Net asset value -- Beginning of period ($) 20.23 17.64 13.73 15.05 14.10 - ------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(a) (0.23) (0.31) (0.29) (0.25) (0.20) Net realized and unrealized gain (loss) 2.24 3.34 4.29 (1.07) 1.18 - ------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 2.01 3.03 4.00 (1.32) 0.98 - ------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net realized gains (0.53) (0.44) (0.09) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.53) (0.44) (0.09) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 21.71 20.23 17.64 13.73 15.05 - ------------------------------------------------------------------------------------------------------------------------ Total Return (%)(b) 10.01(c) 17.24(c) 29.14 (8.77)(c) 6.95(c) - ------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data (%): Expenses 1.99(d) 2.26(d) 2.28(d) 2.35(d) 2.35 Net investment loss (1.15)(d) (1.65)(d) (1.80)(d) (1.76)(d) (1.44) Waiver/reimbursement 0.03 0.02 -- 0.10 0.18 Portfolio turnover rate (%) 19 34 16 40 82 Net assets at end of period (000's) ($) 206,441 185,545 118,064 33,106 13,358
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 26 Financial Highlights - -------------------------------------------------------------------------------- Columbia Acorn Select - --------------------------------------------------------------------------------
Year Ended December 31, 2005 2004 2003 2002 2001 Class C Class C Class C Class C Class C Net asset value -- Beginning of period ($) 20.23 17.64 13.73 15.05 14.10 - ------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(a) (0.25) (0.30) (0.30) (0.25) (0.20) Net realized and unrealized gain (loss) 2.24 3.33 4.30 (1.07) 1.18 - ------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 1.99 3.03 4.00 (1.32) 0.98 - ------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net realized gains (0.53) (0.44) (0.09) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.53) (0.44) (0.09) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 21.69 20.23 17.64 13.73 15.05 - ------------------------------------------------------------------------------------------------------------------------ Total Return(%)(b) 9.91(c) 17.24(c) 29.14 (8.77)(c) 6.95(c) - ------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data (%): Expenses 2.08(d) 2.25(d) 2.28(d) 2.35(d) 2.35 Net investment loss (1.24)(d) (1.64)(d) (1.80)(d) (1.76)(d) (1.44) Waiver/reimbursement 0.03 0.02 -- 0.10 0.18 Portfolio turnover rate (%) 19 34 16 40 82 Net assets at end of period (000's) ($) 149,160 110,435 64,212 10,919 4,945
(a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Investment Adviser and/or Transfer Agent not waived and/or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 27 APPENDIX - -------------------------------------------------------------------------------- Hypothetical Investment and Expense Information - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The tables show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The tables also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher. As noted previously, the Fund's minimum investment for initial purchases or exchanges is $50,000. - -------------------------------------------------------------------------------- Columbia Acorn Select -- Class A Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $10,000.00 5%
Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------- 1 5.00% 1.28% -2.24%(2) $ 9,775.61 $ 697.88 2 10.25% 1.28% 1.39% $ 10,139.26 $ 127.46 3 15.76% 1.28% 5.16% $ 10,516.44 $ 132.20 4 21.55% 1.28% 9.08% $ 10,907.65 $ 137.11 5 27.63% 1.28% 13.13% $ 11,313.42 $ 142.21 6 34.01% 1.28% 17.34% $ 11,734.28 $ 147.51 7 40.71% 1.28% 21.71% $ 12,170.79 $ 152.99 8 47.75% 1.28% 26.24% $ 12,623.55 $ 158.68 9 55.13% 1.28% 30.93% $ 13,093.14 $ 164.59 10 62.89% 1.28% 35.80% $ 13,580.21 $ 170.71 Total Gain After Fees and Expenses $ 3,580.21 Total Annual Fees and Expenses $ 2,031.34
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. (2) Reflects deduction of the maximum initial sales charge. 28 Appendix - -------------------------------------------------------------------------------- Columbia Acorn Select -- Class B Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------- 1 5.00% 2.01% 2.99% $ 10,299.00 $ 204.00 2 10.25% 2.01% 6.07% $ 10,606.94 $ 210.10 3 15.76% 2.01% 9.24% $ 10,924.09 $ 216.39 4 21.55% 2.01% 12.51% $ 11,250.72 $ 222.86 5 27.63% 2.01% 15.87% $ 11,587.11 $ 229.52 6 34.01% 2.01% 19.34% $ 11,933.57 $ 236.38 7 40.71% 2.01% 22.90% $ 12,290.38 $ 243.45 8 47.75% 2.01% 26.58% $ 12,657.87 $ 250.73 9 55.13% 1.28% 31.29% $ 13,128.74 $ 165.03 10 62.89% 1.28% 36.17% $ 13,617.13 $ 171.17 Total Gain After Fees and Expenses $ 3,617.13 Total Annual Fees and Expenses $ 2,149.64
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 29 Appendix - -------------------------------------------------------------------------------- Columbia Acorn Select -- Class C Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses (1) - ---- --------------- -------------- --------------- --------------- ------------- 1 5.00% 2.10% 2.90% $ 10,290.00 $ 213.05 2 10.25% 2.10% 5.88% $ 10,588.41 $ 219.22 3 15.76% 2.10% 8.95% $ 10,895.47 $ 225.58 4 21.55% 2.10% 12.11% $ 11,211.44 $ 232.12 5 27.63% 2.10% 15.37% $ 11,536.57 $ 238.85 6 34.01% 2.10% 18.71% $ 11,871.14 $ 245.78 7 40.71% 2.10% 22.15% $ 12,215.40 $ 252.91 8 47.75% 2.10% 25.70% $ 12,569.64 $ 260.24 9 55.13% 2.10% 29.34% $ 12,934.16 $ 267.79 10 62.89% 2.10% 33.09% $ 13,309.26 $ 275.56 Total Gain After Fees and Expenses $ 3,309.26 Total Annual Fees and Expenses $ 2,431.10
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 30 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Acorn Select - -------------------------------------------------------------------------------- [COLUMBIAFUNDS(R) LOGO] ColumbiaFunds A Member of Columbia Management (C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com INT-36/109689-0306 COLUMBIA THERMOSTAT FUND Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 ................................................. 9 Performance History ........................................................ 13 Your Expenses .............................................................. 15 YOUR ACCOUNT 17 - -------------------------------------------------------------------------------- How to Buy Shares .......................................................... 17 Eligible Investors ......................................................... 18 Sales Charges ("Commissions") .............................................. 20 How to Exchange Shares ..................................................... 20 How to Sell Shares ......................................................... 20 Fund Policy on Trading of Fund Shares ...................................... 21 Financial Intermediary Payments ............................................ 23 Other Information About Your Account ....................................... 24 BOARD OF TRUSTEES 26 - -------------------------------------------------------------------------------- MANAGING THE FUND .......................................................... 27 - -------------------------------------------------------------------------------- Investment Adviser ......................................................... 27 Portfolio Manager .......................................................... 27 Legal Proceedings .......................................................... 27 OTHER INVESTMENT STRATEGIES AND RISKS ...................................... 29 - -------------------------------------------------------------------------------- Derivative Strategies ...................................................... 29 When-Issued Securities and Forward Commitments ............................. 29 Short Sales ................................................................ 29 Asset-Backed Securities .................................................... 30 Mortgage-Backed Securities ................................................. 30 Zero Coupon Bonds .......................................................... 30 Illiquid Investments ....................................................... 31 Temporary Defensive Strategies ............................................. 31 FINANCIAL HIGHLIGHTS 32 - -------------------------------------------------------------------------------- APPENDIX A 33 - -------------------------------------------------------------------------------- APPENDIX B 36 - -------------------------------------------------------------------------------- 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 (Thermostat or the Fund) seeks to provide long-term total return. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Thermostat 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 1700 0% 100% - -------------------------------------------------------------------------------- 1650-1700 5 95 - -------------------------------------------------------------------------------- 1600-1650 10 90 - -------------------------------------------------------------------------------- 1550-1600 15 85 - -------------------------------------------------------------------------------- 1500-1550 20 80 - -------------------------------------------------------------------------------- 1450-1500 25 75 - -------------------------------------------------------------------------------- 1400-1450 30 70 - -------------------------------------------------------------------------------- 1350-1400 35 65 - -------------------------------------------------------------------------------- 1300-1350 40 60 - -------------------------------------------------------------------------------- 1250-1300 45 55 - -------------------------------------------------------------------------------- 1200-1250 50 50 - -------------------------------------------------------------------------------- 1150-1200 55 45 - -------------------------------------------------------------------------------- 1100-1150 60 40 - -------------------------------------------------------------------------------- 1050-1100 65 35 - -------------------------------------------------------------------------------- 1000-1050 70 30 - -------------------------------------------------------------------------------- 950-1000 75 25 - -------------------------------------------------------------------------------- 900-950 80 20 - -------------------------------------------------------------------------------- 850-900 85 15 - -------------------------------------------------------------------------------- 800-850 90 10 - -------------------------------------------------------------------------------- 750-800 95 5 - -------------------------------------------------------------------------------- 750 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 500 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 1240 50% stocks, 50% bonds - ----------------------------------------------------------------------------------------------- Dec. 1 The S&P 500 goes to 1251 rebalance 45% stocks, 55% bonds - ----------------------------------------------------------------------------------------------- Dec. 6 The S&P 500 drops back to 1245 no reversal for 31 days - ----------------------------------------------------------------------------------------------- Jan. 2 The S&P 500 is at 1242 rebalance 50% stocks, 50% bonds - ----------------------------------------------------------------------------------------------- Jan. 20 The S&P 500 drops to 1199 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 1205 no reversal for 31 days - ----------------------------------------------------------------------------------------------- Feb. 20 The S&P 500 is at 1210 rebalance 50% stocks, 50% bonds
The following table shows the six 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 portfolio manager 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 15% - ------------------------------------------------------------------------------------- Columbia Acorn Select Mid-cap growth 10% - ------------------------------------------------------------------------------------- Columbia Large Cap Value Fund(1) Large-cap value 15% - ------------------------------------------------------------------------------------- Columbia Acorn International Mid-cap international growth 15% - ------------------------------------------------------------------------------------- Columbia Dividend Income Fund Large-cap value 20% - ------------------------------------------------------------------------------------- Columbia LargeCap Enhanced Core Fund(2) Large-cap blend 25% - ------------------------------------------------------------------------------------- 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 Conservative High Yield Fund High-yield bonds 20% - ------------------------------------------------------------------------------------- Total 100%
(1) Thermostat formerly invested in Columbia Growth & Income Fund, which merged into Nations Value Fund on September 19, 2005. In connection with the merger, Nations Value Fund changed its name to Columbia Large Cap Value Fund. (2) Nations LargeCap Enhanced Core Fund changed its name on September 26, 2005 to Columbia LargeCap Enhanced Core Fund. As described below, Thermostat's portfolio manager 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. 4 THE FUND 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. On an annual basis, or on an "emergency" basis if necessary, the portfolio manager reviews the structure, allocation percentages and Portfolio Funds of Thermostat and makes any changes considered appropriate. The portfolio manager typically addresses the following questions: Should the stock-bond allocation table be revised? (perhaps because the stock market has made a term move outside of the 750-1700 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 portfolio manager 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 United States in developed markets (for example, Japan, Canada and the 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 5 THE FUND 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. 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. The Fund invests the majority of its assets in U.S. companies, but also may invest up to 25% of its assets in companies outside the United States in developed markets (for example, Japan, Canada and the 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 LARGE CAP VALUE FUND, CLASS Z (VALUE FUND) Value Fund seeks growth of capital by investing in companies that are believed to be undervalued. Value Fund normally invests at least 80% of its assets in common stocks of U.S. companies. Under normal circumstances, the Fund will invest at least 80% of its assets in large capitalization companies whose market capitalizations are within the range of the companies within the Russell 1000 Value Index (currently between $859 million and $367.5 billion) at the time of purchase. It generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million. The Fund may also invest up to 20% of its assets in foreign securities. The Fund may also invest in real estate investment trusts. 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 INTERNATIONAL, CLASS Z (ACORN INTERNATIONAL) Acorn International seeks to provide long-term growth of capital. 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 United States 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, predominantly outside the United States, that are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. 6 THE FUND 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. 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 the 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 DIVIDEND INCOME FUND, CLASS Z (DIVIDEND INCOME FUND) Dividend Income Fund seeks current income and capital appreciation. Under normal market conditions, Dividend Income Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of income-producing (dividend-paying) equity securities, which will consist primarily of common stocks but may also include preferred stocks and convertible securities. The Fund's investment adviser looks for investments that it believes offer prospects for dividend growth and capital appreciation. The Fund generally will emphasize value stocks, but may purchase growth securities when such securities pay dividends or the adviser believes such securities have particularly good prospects for capital appreciation. In addition to equity securities, the Fund may also invest up to 20% of its net assets in debt securities, including lower-quality debt securities. The Fund may invest up to 20% of its net assets in securities of foreign issuers. At times, the investment adviser may determine that adverse market conditions make it desirable to suspend temporarily 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. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." COLUMBIA LARGECAP ENHANCED CORE FUND, CLASS Z (CORE FUND) Core Fund seeks, over the long term, to provide a total return that (before fees and expenses) exceeds the total return of the S&P 500 Index. Under normal circumstances, Core Fund will invest at least 80% of its assets in a portfolio consisting of common stocks that are included in the S&P 500 Index, convertible securities that are convertible into stocks included in that index, and other derivatives whose economic returns are, by design, closely equivalent to the returns of the S&P 500 Index or its components. The S&P 500 Index is an unmanaged index of 500 widely held common stocks, and is not available for investment. The portfolio manager tries to maintain a portfolio that matches the risk characteristics of the S&P 500 Index. The portfolio manager will, from time to time, vary the number and percentages of the Fund's holdings to try to 7 THE FUND provide higher returns than the S&P 500 Index and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index, and may hold securities that are not in the index. 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 and instrumentalities. Agency securities include mortgage-backed securities, which represent interests in pools of mortgages. Certain securities of U.S. government agencies and instrumentalities in which the Fund invests are neither issued nor guaranteed by the U.S. Treasury. Such securities may be supported by the ability to borrow from the U.S. Treasury or only by the credit of the issuing agency or instrumentality, and, as a result, may be subject to greater issuer risk than securities issued or guaranteed by the U.S. Treasury. 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) and Fitch, 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 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, including 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 high-quality debt securities that are at the time of purchase: 8 THE FUND 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. 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 10 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 Fund's adviser has wide flexibility to vary the allocation among different types of debt securities based on its 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 CONSERVATIVE 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 (plus any borrowings for investment purposes) 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. 9 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, 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 asset-backed and 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, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and 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 an asset-backed and 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. 10 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 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 investment 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 portfolio manager 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 is inherent in the Portfolio Funds' investment strategies. 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 will impact the dollar value of foreign 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 11 THE FUND fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. 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. EMERGING MARKETS. Investments in emerging markets are 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 team 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. FUTURES RISK. Core Fund may use futures contracts periodically to manage liquidity. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. DERIVATIVES RISK. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the portfolio manager uses derivatives to enhance a Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The portfolio manager is not required to utilize derivatives to reduce risks. REAL ESTATE INVESTMENT TRUST RISK. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. CONVERTIBLE SECURITIES. Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed 12 THE FUND income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk. MARKET TIMERS. Because Acorn International invests predominantly in foreign securities, it 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 Acorn International 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. 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 the life of the share class. 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. 13 THE FUND - -------------------------------------------------------------------------------- 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 share class. 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 Brothers U.S. Credit Intermediate Bond Index, the intermediate component of the Lehman Brothers U.S. Credit Index, its benchmark with respect to debt securities, and the Lipper Flexible Portfolio Funds Index. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Lehman Brothers U.S. Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Lipper Flexible Portfolio Funds Index is an equal dollar-weighted index of the 30 largest mutual funds within the Flexible Portfolio fund classification, as defined by Lipper. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALENDAR YEAR TOTAL RETURNS (CLASS Z) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] 19.79% 9.17% 5.50% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 For period shown in bar chart: Best quarter: 2nd quarter 2003, 11.36% Worst quarter: 1st quarter 2003, -2.11% 14 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, 2005 - --------------------------------------------------------------------------------
LIFE OF THE SHARE CLASS 1 YEAR SHARE CLASS (1) Class Z (%) Return Before Taxes 5.50 11.71 Return After Taxes on Distributions 3.14 10.55 Return After Taxes on Distributions and Sale of Fund Shares 4.83 9.64 - -------------------------------------------------------------------------------------------- INDICES S&P 500 Index (%) 4.91 15.82 (2) - -------------------------------------------------------------------------------------------- Lehman Brothers U.S. Credit Intermediate Bond Index (%) 1.42 4.73 (2) - -------------------------------------------------------------------------------------------- Lipper Flexible Portfolio Funds Index 6.34 13.57 [(2)] - --------------------------------------------------------------------------------------------
(1) The inception date for Class Z shares is September 25, 2002. (2) Performance information is from September 25, 2002. 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, 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHAREHOLDER FEES (1) (COMMISSIONS 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. 15 THE FUND - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- Management fees (1) (%) 0.10 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses (%) 0.26 - -------------------------------------------------------------------------------- Total annual fund operating expenses (%) 0.36 - -------------------------------------------------------------------------------- Expense reimbursement /Waiver (%) (0.11) - -------------------------------------------------------------------------------- Net expense ratio (2) (%) 0.25 - -------------------------------------------------------------------------------- Expense ratio of Portfolio Funds (%) 0.75 - -------------------------------------------------------------------------------- Net expense ratio including expenses of Portfolio Funds (3) (%) 1.00 - -------------------------------------------------------------------------------- Gross expense ratio including expenses of Portfolio Funds (%) 1.11 (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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) 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, 2007. 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. (3) 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. Based on this allocation, the Fund's estimated indirect annual expenses would have been 0.75%. Such expense ratios ranged from 0.50% to 0.99%. 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, 7.5%; Columbia Acorn Select, 5%; Columbia Large Cap Value Fund, 7.5%; Columbia Acorn International, 7.5%; Columbia Dividend Income Fund, 10%; Columbia Large Cap Enhanced Core Fund, 12.5%; Columbia Federal Securities Fund, 15%; Columbia Intermediate Bond Fund, 25%; and Columbia Conservative High Yield Fund, 10%. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE EXPENSES (1) FOR A $10,000 INVESTMENT (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS $102 $342 $601 $1,342 (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 (2), 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. See Appendix B for additional hypothetical investment and expense information. 16 YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described on page 18), 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 Management 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 Management Distributors, 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 financial advisor and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts, send a completed application and check (new account) made payable to the Fund to Columbia Management Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your account statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, Inc. for shares of the same class or Class A of the Fund at no additional cost. There may be an additional sales 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 funds transfer transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments ($50 investment plan minimum) automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. You may terminate your program or change the amount of the exchange (subject to the $100 minimum) by calling 1-800-345-6611. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by diversification another fund into the same class of shares of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your other dividends in the Fund, call 1-800-345-6611. 17 YOUR ACCOUNT ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund 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 with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any 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 a broker-dealer, bank, third-party administrator or other financial institution (each commonly referred to as 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. You may be asked to provide information, including account statements and other records, regarding your eligibility. 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 purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary; o Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Any investor purchasing through a Columbia Management Group, LLC state tuition plan 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. 18 YOUR ACCOUNT $1,000 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 Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD; o Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD; o Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary; o Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement); o Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an ACCREDITED INVESTOR, as defined under the Securities Act of 1933; or o Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. The Fund reserves the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. 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. 19 YOUR ACCOUNT SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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 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. 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 CMD 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 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 - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" 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 20 YOUR ACCOUNT delay sending the proceeds from the sale of your shares for up to 10 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. During the 90-day period for any shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $25,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. - -------------------------------------------------------------------------------- OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES: - -------------------------------------------------------------------------------- METHOD INSTRUCTIONS Through your You may call your financial advisor to place your sell financial advisor order. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund by exchanging from the Fund into Class Z shares or Class A (only if Class Z is not offered) shares of another fund distributed by Columbia Management Distributors, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. 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 21 YOUR ACCOUNT 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. 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 22 YOUR ACCOUNT FINANCIAL INTERMEDIARY PAYMENTS - -------------------------------------------------------------------------------- The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.40% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. 23 YOUR ACCOUNT 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 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 the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- TYPES OF DISTRIBUTIONS - -------------------------------------------------------------------------------- Represents interest and dividends earned from securities Dividends 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. 24 YOUR ACCOUNT DISTRIBUTION OPTIONS The Fund distributes any 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 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 25 YOUR ACCOUNT 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. 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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. 26 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 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 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, LLC, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005 CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.10% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. The Portfolio Funds are managed by CWAM and its affiliate Columbia Management Advisors, LLC, 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, LLC. CMA also may provide administrative and operational services to Thermostat. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- The portfolio manager reviews on an infrequent basis the structure and allocation ranges of Thermostat and makes any changes considered appropriate. 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 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 30, 2003. He also manages the domestic separate accounts and two offshore funds. The Statement of Additional Information provides additional information about Mr. McQuaid's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn 27 MANAGING THE FUND Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiffs' complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 28 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, options, straddles on similar investments, 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 involves the sale by a Portfolio Fund of a security that it borrows from a third party 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, requiring the Portfolio Fund to purchase the security at the market price at some 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 at the time it is sold short. 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. 29 OTHER INVESTMENTS 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. 30 OTHER INVESTMENTS 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. 31 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 years ended December 31, 2004 and 2005 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 period ended December 31, 2002 and the year ended December 31, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- COLUMBIA THERMOSTAT FUND - --------------------------------------------------------------------------------
INCEPTION SEPTEMBER 25, 2002 THROUGH 2005 2004 2003 DECEMBER 31, 2002 CLASS Z CLASS Z CLASS Z CLASS Z - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE -- BEGINNING OF PERIOD ($) 13.12 12.31 10.41 10.00 - ------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS ($): Net investment income(a) 0.43 0.31 0.19 0.04 Net realized and unrealized gain 0.28 0.82 1.87 0.37 - ------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 0.71 1.13 2.06 0.41 - ------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.42) (0.29) (0.16) -- From net realized gains (0.91) (0.03) (0.00)(b) -- - ------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (1.33) (0.32) (0.16) -- - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE -- END OF PERIOD ($) 12.50 13.12 12.31 10.41 - ------------------------------------------------------------------------------------------------------------------------ Total return(c)(d) (%) 5.50 9.17 19.79 4.10 (e) - ------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses(f) 0.25 (g) 0.25 (g) 0.38 (g) 0.62 (h)(i) Net investment income 3.28 (g) 2.48 (g) 1.64 (g) 1.41 (h)(i) Reimbursement 0.11 0.21 0.88 19.94 (h) Portfolio turnover rate (%) 96 67 61 11 (e) Net assets at end of period (in millions) ($) 26 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 Investment 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. 32 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, 2005 - --------------------------------------------------------------------------------
INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS Columbia Acorn Fund, Class Z (1) (%) 6/10/70 Return Before Taxes 13.11 13.00 15.95 Return After Taxes on Distributions 12.11 12.56 14.11 Return After Taxes on Distributions and Sale of Fund Shares 9.81 11.31 13.33 - ------------------------------------------------------------------------------------------------------------------- Russell 2500(R) Index (%) n/a 8.11 9.14 11.53 S&P 500 Index (%) 4.91 0.54 9.07 Russell 2000(R) Index (%) 4.55 8.22 9.26
(1) The Fund's Class Z share total net annual fund were 0.74%; operating Class Z and expenses at total net assets December 31, of the 2005 Fund were (in millions) $10,399 and $16,391, respectively.
INCEPTION LIFE OF DATE 1 YEAR 5 YEARS THE FUND Columbia Acorn Select, Class Z(1) (%) 11/23/98 Return Before Taxes 11.08 11.36 14.69 Return After Taxes on Distributions 10.58 11.15 14.16 Return After Taxes on Distributions and Sale of Fund Shares 7.84 9.91 12.84 - ------------------------------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a 12.56 8.60 12.17 (2)
(1) The Fund's Class Z share total net annual fund were 0.99%; operating Class Z and expenses at total net assets December 31, of the 2005 Fund were (in millions) $688 and $1,787, respectively. (2) Performance information is from November 23, 1998.
INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS Columbia Large Cap Value Fund, Class Z(1) (%) 9/19/89 Return Before Taxes 9.15 4.15 8.79 Return After Taxes on Distributions 8.38 3.31 6.41 Return After Taxes on Distributions and Sale of Fund Shares 6.19 3.18 6.60 - ------------------------------------------------------------------------------------------------------------------- Russell 1000 Value Index (%) n/a 7.05 5.28 10.94
(1) Nations Value Fund changed its name on September 19, 2005 to Columbia Large Cap Value Fund. The Fund's Class Z share total net annual fund operating expenses at March 31, 2005 were 0.77%; Class Z and total net assets of the Fund were (in millions) $1,376 and $1,771, respectively. 33 APPENDIX A
INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS (2) Columbia Acorn International Fund, Class Z(1) (%) 9/22/92 Return Before Taxes 21.81 9.06 11.93 Return After Taxes on Distributions 20.96 8.78 10.94 Return After Taxes on Distributions and Sale of Fund Shares 15.54 7.84 10.21 - ------------------------------------------------------------------------------------------------------------------- S&P/Citigroup EMI (Global ex-U.S.) Index (%) n/a 21.99 14.20 8.43 MSCI EAFE Index 13.54 4.55 5.84
(1) The Fund's Class Z share total net annual fund operating expenses at were 0.99%; Class December 31, Z and total net 2005 assets of the Fund were (in millions) $2,629 and $2,892, respectively. (2) The Fund's performance in 1999 was achieved during a of unusual period market conditions.
INCEPTION LIFE OF DATE 1 YEAR 5 YEARS FUND Columbia Dividend Income Fund, Class Z(1) (%) 3/4/98 Return Before Taxes 6.62 5.22 6.51 Return After Taxes on Distributions 6.27 4.72 5.33 Return After Taxes on Distributions and Sale of Fund Shares 4.76 4.30 4.95 - ------------------------------------------------------------------------------------------------------------------- Russell 1000 Value Index (%) n/a 7.05 5.28 6.40 (2)
(1) The Fund's Class Z share total net annual fund operating were 0.80%; Class expenses at Z and total net September 30, 2005 assets of the Fund were (in millions) $358 and $509, respectively. (2) Performance information is from March 4, 1998.
INCEPTION LIFE OF DATE 1 YEAR 5 YEARS FUND Columbia LargeCap Enhanced Core Fund, Class Z(1) (%) 7/31/96 Return Before Taxes 6.70 1.69 9.02 Return After Taxes on Distributions 4.52 0.09 7.49 Return After Taxes on Distributions and Sale of Fund Shares 4.56 0.66 7.25 - ------------------------------------------------------------------------------------------------------------------- S&P 500 Index (%) n/a 4.91 0.54 9.07 (2)
(1) Nations LargeCap Enhanced Core Fund changed its name on September 26, 2005 to Columbia LargeCap Enhanced Core Fund. The Fund's Class Z share total net annual fund operating expenses at March 31, 2005 were 0.50%; Class Z and total net assets of the Fund were (in millions) $325 and $343, respectively. (2) Performance information is from July 31, 1996. 34 APPENDIX A
INCEPTION DATE (1) 1 YEAR 5 YEARS 10 YEARS Columbia Federal Securities Fund, Class Z(2) (%) 1/11/99 Return Before Taxes 2.48 5.05 5.28 Return After Taxes on Distributions 0.94 3.23 3.02 Return After Taxes on Distributions and Sale of Fund Shares 1.60 3.21 3.08 - ----------------------------------------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (%) n/a 1.68 4.82 5.50
(1) 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. (2) The Fund's Class Z share total net annual fund operating expenses at August 31, 2005 were 0.83%; Class Z and total net assets of the Fund were (in millions) $39 and $872, respectively.
INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS Columbia Intermediate Bond Fund, Class Z(1) (%) 12/5/78 Return Before Taxes 2.40 6.31 6.36 Return After Taxes on Distributions 0.69 4.14 3.86 Return After Taxes on Distributions and Sale of Fund Shares 1.55 4.08 3.86 - ----------------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (%) n/a 2.43 5.87 6.16
(1) The Fund's Class Z share total net annual fund were 0.69%; operating Class Z and expenses at total net March 31, 2005 assets of the Fund were (in millions) $877 and $1,182, respectively.
INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS Columbia Conservative High Yield Fund, Class Z(1) (%) 10/1/93 Return Before Taxes 2.68 5.82 6.41 Return After Taxes on Distributions 0.43 3.22 3.34 Return After Taxes on Distributions and Sale of Fund Shares 1.72 3.38 3.54 - ----------------------------------------------------------------------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index (%) n/a 2.83 8.76 6.80 JP Morgan Developed BB High Yield Index n/a 2.58 9.34 8.24
(1) The Fund's Class Z share total net annual fund operating expenses at August 31, 2005 were 0.70%; Class Z and total net assets of the Fund were (in thousands) $1,073 and $1,561, respectively. 35 APPENDIX B - -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The table shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The table also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the table, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. - -------------------------------------------------------------------------------- COLUMBIA THERMOSTAT FUND -- CLASS Z SHARES - --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ------- ------------------- ------------------ --------------------- ------------------- -------------------- 1 5.00% 0.25% 4.75% $10,475.00 $25.59 2 10.25% 0.36% 9.61% $10,961.04 $38.58 3 15.76% 0.36% 14.70% $11,469.63 $40.38 4 21.55% 0.36% 20.02% $12,001.82 $42.25 5 27.63% 0.36% 25.59% $12,558.71 $44.21 6 34.01% 0.36% 31.41% $13,141.43 $46.26 7 40.71% 0.36% 37.51% $13,751.19 $48.41 8 47.75% 0.36% 43.89% $14,389.25 $50.65 9 55.13% 0.36% 50.57% $15,056.91 $53.00 10 62.89% 0.36% 57.56% $15,755.55 $55.46 TOTAL GAIN AFTER FEES AND EXPENSES $ 5,755.55 TOTAL ANNUAL FEES AND EXPENSES $444.80
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 36 NOTES - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 37 NOTES - 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-------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 39 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments will be published in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Thermostat Fund ________________________________________________________________________________ [LOGO] COLUMBIA FUNDS A MEMBER OF COLUMBIA MANAGEMENT (C)2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.426.3750 WWW.COLUMBIAFUNDS.COM INT-36/109467-0306 Columbia Thermostat Fund Prospectus, May 1, 2006 - -------------------------------------------------------------------------------- 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 ................................................. 9 Performance History ........................................................ 13 Commissions and Other Expenses ............................................. 15 YOUR ACCOUNT 17 - -------------------------------------------------------------------------------- Choosing a Share Class ..................................................... 17 How to Buy Shares .......................................................... 17 Investment Minimums ........................................................ 18 Sales Charges (Commissions) ................................................ 19 How to Exchange Shares ..................................................... 24 How to Sell Shares ......................................................... 24 Fund Policy on Trading of Fund Shares ...................................... 25 Other Information About Your Account ....................................... 26 BOARD OF TRUSTEES 30 - -------------------------------------------------------------------------------- MANAGING THE FUND 31 - -------------------------------------------------------------------------------- Investment Adviser ......................................................... 31 Portfolio Manager .......................................................... 31 Legal Proceedings .......................................................... 32 OTHER INVESTMENT STRATEGIES AND RISKS 33 - -------------------------------------------------------------------------------- Derivative Strategies ...................................................... 33 When-Issued Securities and Forward Commitments ............................. 33 Short Sales ................................................................ 33 Asset-Backed Securities .................................................... 33 Mortgage-Backed Securities ................................................. 34 Zero Coupon Bonds .......................................................... 34 Illiquid Investments ....................................................... 34 Temporary Defensive Strategies ............................................. 35 FINANCIAL HIGHLIGHTS 36 - -------------------------------------------------------------------------------- APPENDIX A 39 - -------------------------------------------------------------------------------- APPENDIX B 42 - -------------------------------------------------------------------------------- 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 (Thermostat or the Fund) seeks to provide long-term total return. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Thermostat 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 1700 0% 100% - -------------------------------------------------------------------------------- 1650-1700 5 95 - -------------------------------------------------------------------------------- 1600-1650 10 90 - -------------------------------------------------------------------------------- 1550-1600 15 85 - -------------------------------------------------------------------------------- 1500-1550 20 80 - -------------------------------------------------------------------------------- 1450-1500 25 75 - -------------------------------------------------------------------------------- 1400-1450 30 70 - -------------------------------------------------------------------------------- 1350-1400 35 65 - -------------------------------------------------------------------------------- 1300-1350 40 60 - -------------------------------------------------------------------------------- 1250-1300 45 55 - -------------------------------------------------------------------------------- 1200-1250 50 50 - -------------------------------------------------------------------------------- 1150-1200 55 45 - -------------------------------------------------------------------------------- 1100-1150 60 40 - -------------------------------------------------------------------------------- 1050-1100 65 35 - -------------------------------------------------------------------------------- 1000-1050 70 30 - -------------------------------------------------------------------------------- 950-1000 75 25 - -------------------------------------------------------------------------------- 900-950 80 20 - -------------------------------------------------------------------------------- 850-900 85 15 - -------------------------------------------------------------------------------- 800-850 90 10 - -------------------------------------------------------------------------------- 750-800 95 5 - -------------------------------------------------------------------------------- 750 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 500 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 1240 50% stocks, 50% bonds - -------------------------------------------------------------------------------- Dec. 1 The S&P 500 goes to 1251 rebalance 45% stocks, 55% bonds - -------------------------------------------------------------------------------- Dec. 6 The S&P 500 drops back to 1245 no reversal for 31 days - -------------------------------------------------------------------------------- Jan. 2 The S&P 500 is at 1242 rebalance 50% stocks, 50% bonds - -------------------------------------------------------------------------------- Jan. 20 The S&P 500 drops to 1199 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 1205 no reversal for 31 days - -------------------------------------------------------------------------------- Feb. 20 The S&P 500 is at 1210 rebalance 50% stocks, 50% bonds The following table shows the six 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 portfolio manager 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 15% - -------------------------------------------------------------------------------- Columbia Acorn Select Mid-cap growth 10% - -------------------------------------------------------------------------------- Columbia Large Cap Value Fund(1) Large-cap value 15% - -------------------------------------------------------------------------------- Columbia Acorn International Mid-cap international growth 15% - -------------------------------------------------------------------------------- Columbia Dividend Income Fund Large-cap value 20% - -------------------------------------------------------------------------------- Columbia LargeCap Enhanced Core Fund(2) Large-cap blend 25% - -------------------------------------------------------------------------------- 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 Conservative High Yield Fund High-yield bonds 20% - -------------------------------------------------------------------------------- Total 100% (1) Thermostat formerly invested in Columbia Growth & Income Fund, which merged into Nations Value Fund on September 19, 2005. In connection with the merger, Nations Value Fund changed its name to Columbia Large Cap Value Fund. (2) Nations LargeCap Enhanced Core Fund changed its name on September 26, 2005 to Columbia LargeCap Enhanced Core Fund. As described below, Thermostat's portfolio manager 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. 4 The Fund 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. On an annual basis, or on an "emergency" basis if necessary, the portfolio manager reviews the structure, allocation percentages and Portfolio Funds of Thermostat and makes any changes considered appropriate. The portfolio manager 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 750-1700 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 portfolio manager 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 United States in developed markets (for example, Japan, Canada and the 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 5 The Fund 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. 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. The Fund invests the majority of its assets in U.S. companies, but also may invest up to 25% of its assets in companies outside the United States in developed markets (for example, Japan, Canada and the 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 Large Cap Value Fund, Class Z (Value Fund) Value Fund seeks growth of capital by investing in companies that are believed to be undervalued. Value Fund normally invests at least 80% of its assets in common stocks of U.S. companies. Under normal circumstances, the Fund will invest at least 80% of its assets in large capitalization companies whose market capitalizations are within the range of the companies within the Russell 1000 Value Index (currently between $859 million and $367.5 billion) at the time of purchase. It generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million. The Fund may also invest up to 20% of its assets in foreign securities. The Fund may also invest in real estate investment trusts. 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 International, Class Z (Acorn International) Acorn International seeks to provide long-term growth of capital. 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 United States 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, predominantly outside the United States, that are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. 6 The Fund 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. 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 the 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 Dividend Income Fund, Class Z (Dividend Income Fund) Dividend Income Fund seeks current income and capital appreciation. Under normal market conditions, Dividend Income Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of income-producing (dividend-paying) equity securities, which will consist primarily of common stocks but may also include preferred stocks and convertible securities. The Fund's investment adviser looks for investments that it believes offer prospects for dividend growth and capital appreciation. The Fund generally will emphasize value stocks, but may purchase growth securities when such securities pay dividends or the adviser believes such securities have particularly good prospects for capital appreciation. In addition to equity securities, the Fund may also invest up to 20% of its net assets in debt securities, including lower-quality debt securities. The Fund may invest up to 20% of its net assets in securities of foreign issuers. At times, the investment adviser may determine that adverse market conditions make it desirable to suspend temporarily 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. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia LargeCap Enhanced Core Fund, Class Z (Core Fund) Core Fund seeks, over the long term, to provide a total return that (before fees and expenses) exceeds the total return of the S&P 500 Index. Under normal circumstances, Core Fund will invest at least 80% of its assets in a portfolio consisting of common stocks that are included in the S&P 500 Index, convertible securities that are convertible into stocks included in that index, and other derivatives whose economic returns are, by design, closely equivalent to the returns of the S&P 500 Index or its components. The S&P 500 Index is an unmanaged index of 500 widely held common stocks, and is not available for investment. The portfolio manager tries to maintain a portfolio that matches the risk characteristics of the S&P 500 Index. The portfolio manager will, from time to time, vary the number and percentages of the Fund's holdings to try to 7 The Fund provide higher returns than the S&P 500 Index and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index, and may hold securities that are not in the index. 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 and instrumentalities. Agency securities include mortgage-backed securities, which represent interests in pools of mortgages. Certain securities of U.S. government agencies and instrumentalities in which the Fund invests are neither issued nor guaranteed by the U.S. Treasury. Such securities may be supported by the ability to borrow from the U.S. Treasury or only by the credit of the issuing agency or instrumentality, and, as a result, may be subject to greater issuer risk than securities issued or guaranteed by the U.S. Treasury. 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, 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, including 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. 8 The Fund Intermediate Bond Fund will invest at least 60% of its net assets in high-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. 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 10 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 Fund's adviser has wide flexibility to vary the allocation among different types of debt securities based on its 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 Conservative 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 (plus any borrowings for investment purposes) 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. 9 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 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. With respect to investments in mortgage-backed securities, prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and 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, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and 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 an asset-backed and mortgage-backed security may be difficult to predict and result in greater volatility. 10 The Fund 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 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 investment 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 portfolio manager 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 is inherent in the Portfolio Funds' investment strategies. 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. 11 The Fund Foreign securities. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates will impact the dollar value of foreign 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. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. 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. Emerging markets. Investments in emerging markets are 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 team 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. Futures risk. Core Fund may use futures contracts periodically to manage liquidity. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. Derivatives risk. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the portfolio manager uses derivatives to enhance a Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The portfolio manager is not required to utilize derivatives to reduce risks. Real estate investment trust risk. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. Convertible securities. Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk. 12 The Fund Market timers. Because Acorn International invests predominantly in foreign securities, it 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 Acorn International 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. 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 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 the life of the share class. 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 Class commenced operations. They include the effects of Fund expenses, but not the effects of sales charges paid directly by the shareholder. 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 the life of the share class. 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 (Commissions)." The Fund's returns are compared to the S&P 500 Index, its benchmark with respect to equity securities, the Lehman Brothers U.S. Credit Intermediate Bond Index, the intermediate component of the Lehman Brothers U.S. Credit Index, its benchmark with respect to debt securities, and the Lipper Flexible Portfolio Funds Index. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Lehman Brothers U.S. Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. The Lipper Flexible Portfolio Funds Index is an equal dollar-weighted index of the 30 largest mutual funds within the Flexible Portfolio fund classification, as defined by Lipper. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. - -------------------------------------------------------------------------------- 13 The Fund - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A) - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 1996 -- 1997 -- 1998 -- 1999 -- 2000 -- 2001 -- 2002 -- 2003 -- 2004 8.92% 2005 5.25% For the periods shown in bar chart: Best quarter: 4th quarter 2004, +5.75% % Worst quarter: 1st quarter 2005, -1.14% 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, 2005 - --------------------------------------------------------------------------------
Life of the Share Class 1 Year Share Class(1) Class A (%) Return Before Taxes -0.80 10.57 Return After Taxes on Distributions -2.95 9.33 Return After Taxes on Distributions and Sale of Fund Shares 0.65 8.59 - ----------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes -0.20 11.31 Return After Taxes on Distributions -2.28 10.28 Return After Taxes on Distributions and Sale of Fund Shares 1.09 9.35 - ----------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 3.53 12.09 Return After Taxes on Distributions 1.50 11.10 Return After Taxes on Distributions and Sale of Fund Shares 3.52 10.06 - ----------------------------------------------------------------------------------------------- Indices S&P 500 Index (%) 4.91 16.98(2) - ----------------------------------------------------------------------------------------------- Lehman Brothers U.S. Credit Intermediate Bond Index (%) 1.42 3.61(2) - ----------------------------------------------------------------------------------------------- Lipper Flexible Portfolio Funds Index (%) 6.34 14.60(2)
(1) The inception date for Class A, Class B and Class C shares is March 3, 2003. (2) Performance information is from March 3, 2003. 14 The Fund COMMISSIONS AND OTHER EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the commissions and other expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges (Commissions) are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor, who compensates your financial advisor. 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, 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shareholder Fees(1) (commissions 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 12 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank. - -------------------------------------------------------------------------------- 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 (%) 0.30 0.34 0.33 - ------------------------------------------------------------------------------------------------------ Total annual fund operating expenses (%) 0.65 1.29 1.43 - ------------------------------------------------------------------------------------------------------ Expense reimbursement/Waiver (%) (0.15) (0.19) (0.18) - ------------------------------------------------------------------------------------------------------ Net expense ratio(2) (%) 0.50 1.10 1.25 - ------------------------------------------------------------------------------------------------------ Expense ratio of Portfolio Funds (%) 0.75 0.75 0.75 - ------------------------------------------------------------------------------------------------------ Net expense ratio including expenses of Portfolio Funds(3) (%) 1.25 1.85 2.00 - ------------------------------------------------------------------------------------------------------ Gross expense ratio including expenses of Portfolio Funds (%) 1.40 2.04 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, 2005, the administrative fee would be at the annual rate of 0.042%, which rounds to 0.04% and is included in "Other expenses." (2) 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, 2007. 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. 15 The Fund (3) 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. Based on this allocation, the Fund's estimated indirect annual expenses would have been 0.75%. Such expense ratios ranged from 0.50% to 0.99%. 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, 7.5%; Columbia Acorn Select Fund, 5%; Columbia Large Cap Value Fund, 7.5%; Columbia Acorn International, 7.5%; Columbia Dividend Income Fund, 10%; Columbia LargeCap Enhanced Core Fund, 12.5%; Columbia Federal Securities Fund, 15%; Columbia Intermediate Bond Fund, 25%; and Columbia Conservative High Yield Fund, 10%. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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: $695 $979 $1,283 $2,146 - -------------------------------------------------------------------------------- Class B: did not sell your shares $188 $621 $1,081 $2,189 sold all your shares at the end of the period $688 $921 $1,281 $2,189 - -------------------------------------------------------------------------------- Class C: did not sell your shares $203 $665 $1,153 $2,499 sold all your shares at the end of the period $303 $665 $1,153 $2,499 (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 (2), 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. See Appendix B for additional hypothetical investment and expense information. 16 Your Account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- The Fund offers multiple classes of shares. This prospectus offers shares of three classes - Class A, Class B and Class C. Each of those share classes has its own commission and expense structure that affects the investment return of that class. Determining which share class is best for you depends on various factors, including the amount you are investing, how long you expect to hold your investment and your personal situation. You should consult with your financial advisor before deciding which share class is most appropriate for you. The following considerations should be part of your assessment: o You will pay a commission if you buy Class A, B or C shares, either at the time of investment or redemption, or through ongoing distribution commission payments ("Rule 12b-1 fees") made from your investment over time, or both. o Class A shares require an up-front commission payment, but pay lower ongoing Rule 12b-1 fees than Class B and Class C shares. Class B and Class C shares have no up-front commission paid by the shareholder but pay higher ongoing commissions (Rule 12b-1 fees), and a deferred commission is imposed on a redemption of Class B shares within six years after purchase. The differential between classes will vary depending on the actual investment return for any given period. o Class A shares are generally more advantageous to an investor who intends to hold the shares for several years and invests an amount large enough to qualify for a reduced rate of initial sales commission, taking into account the commissions you may pay when redeeming shares of other classes. Class A shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.25% of the average value of the shares. o Class B shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 0.85% of the average value of the shares and automatically convert to Class A shares after eight years. A Class B shareholder of the Fund whose account has a value of less than $50,000 (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for reduced sales charges on Class A shares) may purchase additional Class B shares of the Fund to increase the account value up to a maximum of $49,999; any additional investment by the shareholder in that Fund will be invested in Class A shares of the Fund, without regard to the normal investment minimum for Class A shares, but will be subject to the applicable Class A shares up-front commission. o Class C shares are generally more advantageous to an investor who intends to hold shares for only a few years. Class C shares pay an ongoing annual commission (Rule 12b-1 fee) of up to 1.00% of the average value of the shares. o If you invest $1 million or more you can purchase Class A shares but not Class C shares. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other eligible investors. Class Z shares are offered by a separate prospectus. HOW TO BUY SHARES - -------------------------------------------------------------------------------- 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. 17 Your Account INVESTMENT MINIMUMS - -------------------------------------------------------------------------------- The investment minimum for initial investment (by purchase, exchange or certain transfers) of Class A, B and C shares is $1,000. The investment minimum is applied at the class level. For group retirement plans, the investment minimum is determined based on the amount of the plan's investment rather than that of its individual participants. The Fund may establish exclusions from the investment minimum from time to time that it deems appropriate and consistent with the interests of shareholders. Please see the Statement of Additional Information for details on these exclusions. For participants in the Automatic Investment Plan the initial investment minimum is $50. For participants in certain retirement plans the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. 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. Please see the Statement of Additional Information for more details on investment minimums. - -------------------------------------------------------------------------------- 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 the financial 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 the transfer agent, (new account) Columbia Management 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 statement, (existing account) or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Columbia Management 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 Management Distributors, 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 sales charge if exchanging from a money market fund. An exchange to another fund may incur a sales charge if the original purchase was not assessed a sales charge. 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 Fund transfer 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 Fund investment plan 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 fund cost averaging 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 some diversification cases, certain other classes) of the Fund at no additional sales charge. There may be an additional sales charge if exchanging from a money market fund. To invest your other dividends in the Fund, call 1-800-345-6611.
18 Your Account SALES CHARGES (COMMISSIONS) - -------------------------------------------------------------------------------- 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. 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 sales and marketing fees (commissions) 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. The annual fee, as a percentage of the value of the shares, is normally 0.25% for Class A, 0.85% for Class B and 1.00% for Class C shares. These fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the Rule 12b-1 fee thereafter. Financial Intermediary Payments The Fund's distributor, investment adviser or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services. For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment adviser, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with the Fund's distributor or one of its affiliates. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, gross sales of the mutual funds distributed by the Fund's distributor attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. While the financial arrangements may vary for each financial intermediary, the support payments to any one financial intermediary are generally expected to be between 0.02% and 0.10% on an annual basis for payments based on average net assets of the Fund attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Fund attributable to the financial intermediary. The Fund's distributor, investment adviser or their affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America affiliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. Payments may also be made to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for services they provide to such programs, including, but not limited to, sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis. The Fund's distributor, investment adviser or their affiliates may make other payments or allow promotional incentives to dealers to the extent permitted by SEC and NASD rules and by other applicable laws and regulations. Amounts paid by the Fund's distributor, investment adviser or their affiliates are paid out of the distributor's, investment adviser's or their affiliates' own revenue and do not increase the amount paid by you or your Fund. 19 Your Account You can find further details about the payments made by the Fund's distributor, investment adviser or their affiliates and the services provided by financial intermediaries as well as a list of the financial intermediaries to which the Fund's distributor, investment adviser or their affiliates have agreed to make marketing support payments in your Fund's Statement of Additional Information, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You can ask your financial intermediary for information about any payments it receives from the Fund's distributor, investment adviser and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. Class A shares Your purchases of Class A shares are made at the public offering price. 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 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 it distributes. Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-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. 20 Your Account For Class A share purchases of $1 million or more by certain group retirement plans, 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 $50 million 0.50 - -------------------------------------------------------------------------------- $50 million or more 0.25 For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million. - -------------------------------------------------------------------------------- UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (COMMISSIONS) 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 (Commissions) 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. 21 Your Account 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. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend 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 advisor's 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 Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into other Columbia funds, as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. 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, which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611. Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases in Class B shares may not result in the account holding $50,000 or more of Class B shares (including for this purpose the combined value of all eligible accounts maintained by you that would be used to determine eligibility for 22 Your Account reduced sales charges on Class A shares). In the event that an existing Class B shareholder seeks to add funds to such an account in excess of $49,999, the amount in excess may be invested in Class A shares without the imposition of the minimum investment requirement for Class A shares. Such purchases of Class A shares will be subject to the applicable sales load imposed on such purchases. See "Class A Sales Charges" on page 20. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold within six years of purchase. The CDSC declines over the six years and disappears in the seventh year. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart 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 $50,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) 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 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. Up-front commission to financial advisors is 4.00% and is paid by the distributor. In addition, from the annual fee of 0.85% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, the distributor receives 0.60% of the value of the shares for each of the first eight years, or an aggregate 4.80% over eight years, which will offset the commission it paid to your financial advisor. Your financial advisor is paid the remaining 0.25% as an ongoing commission for the life of your investment. The conversion of Class B shares to Class A shares occurs automatically eight years after purchase. 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 your purchase of Class C shares, for which the distributor is repaid from the ongoing annual fee of 1.00% of the value of your shares paid out of your Fund assets as Rule 12b-1 fees, which is higher than the Rule 12b-1 fees borne by Class A and Class B shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold(1) Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 (1) Applied to the net asset value at the time of purchase or sale, whichever is lower. 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. 23 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 Management Distributors, 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 Management Distributors, 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. Exchanges of Class B shares for Class B shares of another fund distributed by Columbia Management Distributors, Inc. in amounts of $50,000 or more are still permitted. 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, 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 10 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. 24 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, your financial advisor 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 Management Distributors, 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, if applicable, 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 Management 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 request. Be sure to complete the appropriate section of the account application for this feature. - ------------------------------------------------------------------------------------------------------------------------------------ By systematic You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or withdrawal plan semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. 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 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. 25 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. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund, which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) 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. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods. 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. 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. 26 Your Account 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 the fair value of the securities. 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 is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. - -------------------------------------------------------------------------------- 27 Your Account Distribution Options The Fund distributes any 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, 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 28 Your Account 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. 29 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 until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. 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. 30 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 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 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, LLC, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM's advisory fee for managing the Fund in 2005 was 0.10% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2005 of 0.04% of the Fund's average daily net assets. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. The Portfolio Funds are managed by CWAM and its affiliate Columbia Management Advisors, LLC, 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, LLC. CMA also may provide administrative and operational services to Thermostat. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- The portfolio manager reviews on an infrequent basis the structure and allocation ranges of Thermostat and makes any changes considered appropriate. 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 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 30, 2003. He also manages two domestic separate accounts and two offshore funds. The Statement of Additional Information provides additional information about Mr. McQuaid's compensation, other accounts he manages and his ownership of securities in the Fund. 31 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Trust, CWAM and the trustees of the Trust are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of the Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the federal district court for the District of Massachusetts, alleging that CWAM charged excessive fees, including advisory fees and Rule 12b-1 fees, and used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The Seventh Circuit Court of Appeals ordered the district court to dismiss the plaintiff's complaint. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Fund. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. 32 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, options, straddles or similar investments, 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 for other hedging purposes (i.e., attempting their sensitivity to changes in interest rates, or 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 involves the sale by a Portfolio Fund of a security that it borrows from a third party 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, requiring the Portfolio Fund to purchase the security at the market price at some 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 at the time it is sold short. 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 decline in interest rates may lead to a faster rate of repayment on asset-backed securities and therefore, cause a 33 Other Investments Strategies and Risks 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. 34 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. 35 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 years ended December 31, 2004 and 2005 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 period ended December 31, 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 and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Thermostat Fund - --------------------------------------------------------------------------------
Inception March 3, 2003 through 2005 2004 December 31, 2003 Class A Class A Class A ------- ------- ----------------- Net asset value -- Beginning of period ($) 13.11 12.30 10.10 - --------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.39 0.28 0.18 Net realized and unrealized gain 0.29 0.81 2.15 - --------------------------------------------------------------------------------------------- Total from Investment Operations 0.68 1.09 2.33 - --------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.39) (0.25) (0.13) From net realized gains (0.91) (0.03) (0.00)(b) - --------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.30) (0.28) (0.13) - --------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 12.49 13.11 12.30 - --------------------------------------------------------------------------------------------- Total return (%)(d) 5.25 8.92 23.10(e) - --------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(f)(g) 0.50 0.50 0.57(h) Net investment income(g) 2.97 2.23 1.86(h) Reimbursement 0.15 0.33 0.66(h) Portfolio turnover rate (%) 96 67 61 Net assets at end of period (000's) ($) 71,034 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) Rounds to less than $(0.01) per share. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Investment Adviser and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) Does not include expenses of the investment companies in which the Fund invests. (g) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. 36 Financial Highlights - -------------------------------------------------------------------------------- Columbia Thermostat Fund - --------------------------------------------------------------------------------
Inception March 3, 2003 through 2005 2004 December 31, 2003 Class B Class B Class B ------- ------- ----------------- Net asset value -- Beginning of period ($) 13.14 12.32 10.10 - --------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.31 0.19 0.10 Net realized and unrealized gain 0.28 0.83 2.16 - --------------------------------------------------------------------------------------------- Total from Investment Operations 0.59 1.02 2.26 - --------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.31) (0.17) (0.04) From net realized gains (0.91) (0.03) (0.00)(b) - --------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.22) (0.20) (0.04) - --------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 12.51 13.14 12.32 - --------------------------------------------------------------------------------------------- Total return (%)(c)(d) 4.56 8.27 22.38(e) - --------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(f)(g) 1.10 1.18 1.32(h) Net investment income(g) 2.39 1.55 1.06(h) Reimbursement 0.19 0.29 0.66(h) Portfolio turnover rate (%) 96 67 61 Net assets at end of period (000's) ($) 78,444 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) Rounds to less than $(0.01) per share. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Investment Adviser and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) Does not include expenses of the investment companies in which the Fund invests. (g) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. 37 Financial Highlights - -------------------------------------------------------------------------------- Columbia Thermostat Fund - --------------------------------------------------------------------------------
Inception March 3, 2003 through 2005 2004 December 31, 2003 Class C Class C Class C ------- ------- ----------------- Net asset value -- Beginning of period ($) 13.13 12.32 10.10 - --------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.29 0.19 0.11 Net realized and unrealized gain 0.29 0.81 2.15 - --------------------------------------------------------------------------------------------- Total from Investment Operations 0.58 1.00 2.26 - --------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.29) (0.16) (0.04) From net realized gains (0.91) (0.03) (0.00)(b) - --------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.20) (0.19) (0.04) - --------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 12.51 13.13 12.32 - --------------------------------------------------------------------------------------------- Total return (%)(c)(d) 4.49 8.13 22.38(e) - --------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data (%): Expenses(f)(g) 1.25 1.25 1.32(h) Net investment income(g) 2.21 1.48 1.10(h) Reimbursement 0.19 0.26 0.66(h) Portfolio turnover rate (%) 96 67 61 Net assets at end of period (000's) ($) 28,316 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) Rounds to less than $(0.01) per share. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Investment 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. 38 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, 2005 - --------------------------------------------------------------------------------
Inception Date 1 Year 5 Years 10 Years Columbia Acorn Fund, Class Z(1) (%) 6/10/70 Return Before Taxes 13.11 13.00 15.95 Return After Taxes on Distributions 12.11 12.56 14.11 Return After Taxes on Distributions and Sale of Fund Shares 9.81 11.31 13.33 - ---------------------------------------------------------------------------------------------------------- Russell 2500(R) Index (%) n/a 8.11 9.14 11.53 S&P 500 Index (%) 4.91 0.54 9.07 Russell 2000(R) Index (%) 4.55 8.22 9.26
(1) The Fund's Class Z share total net annual fund operating expenses at December 31, 2005 were 0.74%; Class Z and total net assets of the Fund were (in millions) $10,399 and $16,391, respectively.
Inception Life of Date 1 Year 5 Years the Fund Columbia Acorn Select, Class Z(1) (%) 11/23/98 Return Before Taxes 11.08 11.36 14.69 Return After Taxes on Distributions 10.58 11.15 14.16 Return After Taxes on Distributions and Sale of Fund Shares 7.84 9.91 12.84 - ---------------------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a 12.56 8.60 12.17(2)
(1) The Fund's Class Z share total net annual fund operating expenses at December 31, 2005 were 0.99%; Class Z and total net assets of the Fund were (in millions) $688 and $1,787, respectively. (2) Performance information is from November 23, 1998.
Inception Date 1 Year 5 Years 10 Years Columbia Large Cap Value Fund, Class Z(1) (%) 9/19/89 Return Before Taxes 9.15 4.15 8.79 Return After Taxes on Distributions 8.38 3.31 6.41 Return After Taxes on Distributions and Sale of Fund Shares 6.19 3.18 6.60 - ---------------------------------------------------------------------------------------------------------- Russell 1000 Value Index (%) n/a 7.05 5.28 10.94
(1) Nations Value Fund changed its name on September 19, 2005 to Columbia Large Cap Value Fund. The Fund's Class Z share total net annual fund operating expenses at March 31, 2005 were 0.77%; Class Z and total net assets of the Fund were (in millions) $1,376 and $1,771, respectively. 39 Appendix A
Inception Date 1 Year 5 Years 10 Years(2) Columbia Acorn International Fund, Class Z(1) (%) 9/22/92 Return Before Taxes 21.81 9.06 11.93 Return After Taxes on Distributions 20.96 8.78 10.94 Return After Taxes on Distributions and Sale of Fund Shares 15.54 7.84 10.21 - ------------------------------------------------------------------------------------------------------------- S&P/Citigroup EMI (Global ex-U.S.) Index (%) n/a 21.99 14.20 8.43 MSCI EAFE Index 13.54 4.55 5.84
(1) The Fund's Class Z share total net annual fund operating expenses at December 31, 2005 were 0.99%; Class Z and total net assets of the Fund were (in millions) $2,629 and $2,892, respectively. (2) The Fund's performance in 1999 was achieved during a period of unusual market conditions.
Inception Life of Date 1 Year 5 Years Fund Columbia Dividend Income Fund, Class Z(1) (%) 3/4/98 Return Before Taxes 6.62 5.22 6.51 Return After Taxes on Distributions 6.27 4.72 5.33 Return After Taxes on Distributions and Sale of Fund Shares 4.76 4.30 4.95 - ------------------------------------------------------------------------------------------------------------- Russell 1000 Value Index (%) n/a 7.05 5.28 6.40(2)
(1) The Fund's Class Z share total net annual fund operating expenses at September 30, 2005 were 0.80%; Class Z and total net assets of the Fund were (in millions) $358 and $509, respectively. (2) Performance information is from March 4, 1998.
Inception Life of Date 1 Year 5 Years Fund Columbia LargeCap Enhanced Core Fund, Class Z(1) (%) 7/31/96 Return Before Taxes 6.70 1.69 9.02 Return After Taxes on Distributions 4.52 0.09 7.49 Return After Taxes on Distributions and Sale of Fund Shares 4.56 0.66 7.25 - ------------------------------------------------------------------------------------------------------------ S&P 500 Index (%) n/a 4.91 0.54 9.07(2)
(1) Nations LargeCap Enhanced Core Fund changed its name on September 26, 2005 to Columbia LargeCap Enhanced Core Fund. The Fund's Class Z share total net annual fund operating expenses at March 31, 2005 were 0.50%; Class Z and total net assets of the Fund were (in millions) $325 and $343, respectively. (2) Performance information is from July 31, 1996. 40 Appendix A
Inception Date(1) 1 Year 5 Years 10 Years Columbia Federal Securities Fund, Class Z(2) (%) 1/11/99 Return Before Taxes 2.48 5.05 5.28 Return After Taxes on Distributions 0.94 3.23 3.02 Return After Taxes on Distributions and Sale of Fund Shares 1.60 3.21 3.08 - ---------------------------------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (%) n/a 1.68 4.82 5.50
(1) 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. (2) The Fund's Class Z share total net annual fund operating expenses at August 31, 2005 were 0.83%; Class Z and total net assets of the Fund were (in millions) $39 and $872, respectively.
Inception Date 1 Year 5 Years 10 Years Columbia Intermediate Bond Fund, Class Z(1) (%) 12/5/78 Return Before Taxes 2.40 6.31 6.36 Return After Taxes on Distributions 0.69 4.14 3.86 Return After Taxes on Distributions and Sale of Fund Shares 1.55 4.08 3.86 - ---------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (%) n/a 2.43 5.87 6.16
(1) The Fund's Class Z share total net annual fund operating expenses at March 31, 2005 were 0.69%; Class Z and total net assets of the Fund were (in millions) $877 and $1,182, respectively.
Inception Date 1 Year 5 Years 10 Years Columbia Conservative High Yield Fund, Class Z(1) (%) 10/1/93 Return Before Taxes 2.68 5.82 6.41 Return After Taxes on Distributions 0.43 3.22 3.34 Return After Taxes on Distributions and Sale of Fund Shares 1.72 3.38 3.54 - ---------------------------------------------------------------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index (%) n/a 2.83 8.76 6.80 JP Morgan Developed BB High Yield Index n/a 2.58 9.34 8.24
(1) The Fund's Class Z share total net annual fund operating expenses at August 31, 2005 were 0.70%; Class Z and total net assets of the Fund were (in thousands) $1,073 and $1,561, respectively. 41 APPENDIX B - -------------------------------------------------------------------------------- Hypothetical Investment and Expense Information - -------------------------------------------------------------------------------- The Fund is required to disclose the following supplemental hypothetical investment information, which provides additional information about the effect of the expenses paid by the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The tables show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The tables also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the tables, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher. - -------------------------------------------------------------------------------- Columbia Thermostat Fund -- Class A Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses(1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 0.50% -1.51%(2) $ 9,849.13 $ 623.19 2 10.25% 0.65% 2.78% $ 10,277.56 $ 65.41 3 15.76% 0.65% 7.25% $ 10,724.64 $ 68.26 4 21.55% 0.65% 11.91% $ 11,191.16 $ 71.23 5 27.63% 0.65% 16.78% $ 11,677.97 $ 74.32 6 34.01% 0.65% 21.86% $ 12,185.96 $ 77.56 7 40.71% 0.65% 27.16% $ 12,716.05 $ 80.93 8 47.75% 0.65% 32.69% $ 13,269.20 $ 84.45 9 55.13% 0.65% 38.46% $ 13,846.41 $ 88.13 10 62.89% 0.65% 44.49% $ 14,448.73 $ 91.96 Total Gain After Fees and Expenses $ 4,448.73 Total Annual Fees and Expenses $1,325.43
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. (2) Reflects deduction of the maximum initial sales charge. 42 Appendix B - -------------------------------------------------------------------------------- Columbia Thermostat Fund -- Class B Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses(1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.10% 3.90% $ 10,390.00 $ 112.15 2 10.25% 1.29% 7.75% $ 10,775.47 $ 136.52 3 15.76% 1.29% 11.75% $ 11,175.24 $ 141.58 4 21.55% 1.29% 15.90% $ 11,589.84 $ 146.83 5 27.63% 1.29% 20.20% $ 12,019.82 $ 152.28 6 34.01% 1.29% 24.66% $ 12,465.76 $ 157.93 7 40.71% 1.29% 29.28% $ 12,928.24 $ 163.79 8 47.75% 1.29% 34.08% $ 13,407.88 $ 169.87 9 55.13% 0.65% 39.91% $ 13,991.12 $ 89.05 10 62.89% 0.65% 46.00% $ 14,599.73 $ 92.92 Total Gain After Fees and Expenses $ 4,599.73 Total Annual Fees and Expenses $ 1,362.92
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 43 Appendix B - -------------------------------------------------------------------------------- Columbia Thermostat Fund -- Class C Shares - --------------------------------------------------------------------------------
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% Hypothetical Cumulative Cumulative Year-End Annual Return Before Annual Expense Return After Balance After Fees & Year Fees & Expenses Ratio Fees & Expenses Fees & Expenses Expenses(1) - ---- --------------- -------------- --------------- --------------- ------------ 1 5.00% 1.25% 3.75% $10,375.00 $ 127.34 2 10.25% 1.43% 7.45% $10,745.39 $ 151.01 3 15.76% 1.43% 11.29% $11,129.00 $ 156.40 4 21.55% 1.43% 15.26% $11,526.30 $ 161.99 5 27.63% 1.43% 19.38% $11,937.79 $ 167.77 6 34.01% 1.43% 23.64% $12,363.97 $ 173.76 7 40.71% 1.43% 28.05% $12,805.37 $ 179.96 8 47.75% 1.43% 32.63% $13,262.52 $ 186.39 9 55.13% 1.43% 37.36% $13,735.99 $ 193.04 10 62.89% 1.43% 42.26% $14,226.36 $ 199.93 Total Gain After Fees and Expenses $ 4,226.36 Total Annual Fees and Expenses $1,697.58
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. 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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 47 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments will be published in the Fund's semi-annual 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 Statement of Additional Information 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 semi-annual 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 Management Distributors, 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, including the Statement of Additional Information, 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: 811-01829 o Columbia Thermostat Fund - -------------------------------------------------------------------------------- [COLUMBIAFUNDS(R) LOGO] ColumbiaFunds A Member of Columbia Management (C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com INT-36/109496-0306 COLUMBIA ACORN TRUST STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2006 This Statement of Additional Information ("SAI") contains information that may be useful to investors but 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, 2006. This SAI should be read together with a Prospectus and the Trust's most recent Annual Report dated December 31, 2005. Investors may obtain a free copy of a Prospectus and Annual Report from Columbia Management Distributors, Inc. ("CMD"), 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 Trust's December 31, 2005 Annual Report are incorporated in this SAI by reference.
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 2 Organization and History . . . . . . . . . . . . . . . . . . . 2 Investment Policies. . . . . . . . . . . . . . . . . . . . . . 2 Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . 16 Additional Information Concerning Certain Investment Practices 16 Taxes - General. . . . . . . . . . . . . . . . . . . . . . . . 29 Management of the Trust. . . . . . . . . . . . . . . . . . . . 34 CMD's Charges and Expenses . . . . . . . . . . . . . . . . . . 51 Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . 59 Anti-Money Laundering Compliance . . . . . . . . . . . . . . . 59 Proxy Voting Policies and Fund Proxy Voting Record . . . . . . 59 Disclosure of Portfolio Information. . . . . . . . . . . . . . 60 Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Independent Registered Public Accounting Firm. . . . . . . . . 61 Determination of Net Asset Value . . . . . . . . . . . . . . . 61 How to Buy Shares. . . . . . . . . . . . . . . . . . . . . . . 63 Special Purchase Programs/Investor Services. . . . . . . . . . 67 Programs for Reducing or Eliminating Sales Charges . . . . . . 68 How to Sell Shares . . . . . . . . . . . . . . . . . . . . . . 71 How to Exchange Shares . . . . . . . . . . . . . . . . . . . . 73 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 74 Suspension of Redemptions. . . . . . . . . . . . . . . . . . . 74 Shareholder Liability. . . . . . . . . . . . . . . . . . . . . 74 Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . 74 Performance Measures and Information . . . . . . . . . . . . . 75 Appendix I - Description of Bond Ratings . . . . . . . . . . . 77 Appendix II - Proxy Voting Policy and Procedures . . . . . . . 79
INT-39/109699-0406
COLUMBIA ACORN TRUST STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2006 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 Acorn International, Columbia Dividend Income Fund, Columbia LargeCap Enhanced Core Fund, Columbia Large Cap Value Fund, Columbia Federal Securities Fund, Columbia Intermediate Bond Fund and Columbia Conservative High Yield Fund "Adviser" or "Columbia WAM" Columbia Wanger Asset Management, L.P., the Funds' investment adviser and administrator "CMD" Columbia Management Distributors, Inc., the Funds' distributor "CMS" Columbia Management 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. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. 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 10 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 designed for investors seeking 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 Funds Series Trust and Columbia Funds Series Trust I (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 Acorn International, Columbia Dividend Income Fund, Columbia LargeCap 2 Enhanced Core Fund, Columbia Large Cap Value Fund, Columbia Federal Securities Fund, Columbia Intermediate Bond Fund and Columbia Conservative High Yield Fund. 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 the portfolio managers believe value stocks are more attractive and may invest more in growth stocks when the portfolio managers believe growth stocks are more attractive. 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, that 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; 3 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 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; 4 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. 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); 5 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; 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. 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. 6 NON-FUNDAMENTAL INVESTMENT POLICIES Non-fundamental investment policies 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]; 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 (valued at time of investment) 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, COLUMBIA ACORN INTERNATIONAL, COLUMBIA ACORN USA 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. 7 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. COLUMBIA ACORN FUND - see investment restrictions listed above COLUMBIA ACORN SELECT - see investment restrictions listed above COLUMBIA LARGE CAP VALUE FUND Fundamental Investment Policies - ------------------------------- 1. The Fund may not underwrite any issue of securities within the meaning of the 1933 Act except when it might technically be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered management investment companies. 2. The Fund may not purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. The Fund may not purchase or sell commodities, except that the Fund may, to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions, including, without limitation, forward currency contracts. 4. The Fund may not purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 5. The Fund may not make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 6. The Fund may not borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 7. The Fund may not purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations; and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 8 Non-Fundamental Investment Policies - ----------------------------------- 1. The Fund may invest in shares of other open-end management investment companies, subject to the limitations of the 1940 Act, the rules thereunder, and any orders obtained thereunder now or in the future. Any Fund that is purchased by another Fund in reliance on Section 12(d)(1)(G) of the 1940 Act or an exemptive order granting relief from Section 12(d)(1)(G) will not purchase shares of a registered open-end investment company in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act. Funds in a master/feeder structure generally invest in the securities of one or more open-end management investment companies pursuant to various provisions of the 1940 Act. 2. The Fund may not invest or hold more than 15% of the Fund's net assets in illiquid securities. For this purpose, illiquid securities include, among others: (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale; (b) fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days; and (c) repurchase agreements not terminable within seven days. 3. The Fund may invest in futures or options contracts regulated by the CFTC for: (i) bona fide hedging purposes within the meaning of the rules of the CFTC; and (ii) for other purposes if, as a result, no more than 5% of the Fund's net assets would be invested in initial margin and premiums (excluding amounts "in-the-money") required to establish the contracts. 4. The Fund may lend securities from its portfolio to brokers, dealers and financial institutions, in amounts not to exceed (in the aggregate) one-third of the Fund's total assets. Any such loans of portfolio securities will be fully collateralized based on values that are marked to market daily. 5. The Fund may not make investments for the purpose of exercising control of management. (Investments by the Fund in entities created under the laws of foreign countries solely to facilitate investment in securities in that country will not be deemed the making of investments for the purpose of exercising control.) 6. The Fund may not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (short sales "against the box") or the Fund segregates assets in the amount at least equal to the underlying security or asset. 7. To the extent the Fund is subject to Rule 35d-1 under the 1940 Act (the "Names Rule"), and does not otherwise have a fundamental investment policy in place to comply with the Names Rule, it has adopted the following non-fundamental policy: Shareholders will receive at least 60 days' notice of any change to a Fund's investment objective or principal investment strategies made in order to comply with the Names Rule. The notice will be provided in Plain English in a separate written document, and will contain the following prominent statement or similar statement in bold-face type: "Important Notice Regarding Change in Investment Policy." This statement will appear on both the notice and the envelope in which it is delivered, unless it is delivered separately from other communications to investors, in which case the statement will appear either on the notice or the envelope in which the notice is delivered. Notwithstanding the investment policies and restrictions of Columbia Large Cap Value 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 LARGE-CAP ENHANCED CORE FUND Fundamental Investment Policies - ------------------------------- 1. The Fund may not underwrite any issue of securities within the meaning of the 1933 Act except when it might technically be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered management investment companies. 9 2. The Fund may not purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. The Fund may not purchase or sell commodities, except that the Fund may, to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions, including, without limitation, forward currency contracts. 4. The Fund may not purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 5. The Fund may not make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 6. The Fund may not borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. 7. The Fund may not purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations; and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Fund. Non-Fundamental Investment Policies - ----------------------------------- 1. The Fund may invest in shares of other open-end management investment companies, subject to the limitations of the 1940 Act, the rules thereunder, and any orders obtained thereunder now or in the future. Any Fund that is purchased by another Fund in reliance on Section 12(d)(1)(G) of the 1940 Act or an exemptive order granting relief from Section 12(d)(1)(G) will not purchase shares of a registered open-end investment company in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act. Funds in a master/feeder structure generally invest in the securities of one or more open-end management investment companies pursuant to various provisions of the 1940 Act. 2. The Fund may not invest or hold more than 15% of the Fund's net assets in illiquid securities. For this purpose, illiquid securities include, among others: (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale; (b) fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days; and (c) repurchase agreements not terminable within seven days. 3. The Fund may invest in futures or options contracts regulated by the CFTC for: (i) bona fide hedging purposes within the meaning of the rules of the CFTC; and (ii) for other purposes if, as a result, no more than 5% of the Fund's net assets would be invested in initial margin and premiums (excluding amounts "in-the-money") required to establish the contracts. 4. The Fund may lend securities from its portfolio to brokers, dealers and financial institutions, in amounts not to exceed (in the aggregate) one-third of the Fund's total assets. Any such loans of portfolio securities will be fully collateralized based on values that are marked to market daily. 10 5. The Fund may not make investments for the purpose of exercising control of management. (Investments by the Fund in entities created under the laws of foreign countries solely to facilitate investment in securities in that country will not be deemed the making of investments for the purpose of exercising control.) 6. The Fund may not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (short sales "against the box") or the Fund segregates assets in the amount at least equal to the underlying security or asset. 7. To the extent the Fund is subject to Rule 35d-1 under the 1940 Act (the "Names Rule"), and does not otherwise have a fundamental investment policy in place to comply with the Names Rule, it has adopted the following non-fundamental policy: Shareholders will receive at least 60 days' notice of any change to a Fund's investment objective or principal investment strategies made in order to comply with the Names Rule. The notice will be provided in Plain English in a separate written document, and will contain the following prominent statement or similar statement in bold-face type: "Important Notice Regarding Change in Investment Policy." This statement will appear on both the notice and the envelope in which it is delivered, unless it is delivered separately from other communications to investors, in which case the statement will appear either on the notice or the envelope in which the notice is delivered. COLUMBIA ACORN INTERNATIONAL - see investment restrictions listed herein COLUMBIA DIVIDEND INCOME FUND Fundamental Investment Policies - ------------------------------- The Fund may not, as a matter of fundamental policy: 1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein. 3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. 5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. 6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. 11 7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Non-Fundamental Investment Policies - ----------------------------------- The following investment limitation with respect to Columbia Dividend Income Fund may be changed by the Board of Trustees without shareholder approval: 1. The Fund may not sell securities short, maintain a short position, or purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions. 2. The Fund may not write or sell put options, call options, straddles, spreads or any combination thereof except that it may buy and sell options, including without limit buying or writing puts and calls, based on any type of security, index or currency, including options on foreign exchanges and options not traded on exchanges to the extent permitted by its investment objective and policies. 3. The Fund may not purchase securities of companies for the purpose of exercising control. 4. The Fund may not 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. 5. The Fund may not invest more than 15% of its net assets in illiquid securities. COLUMBIA FEDERAL SECURITIES FUND Fundamental Investment Policies - ------------------------------- Columbia Federal Securities Fund may not: 1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933 (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies; 2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein; 3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; 12 5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; 6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; and 7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Non-Fundamental Investment Policies - ----------------------------------- 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 - ------------------------------- Columbia Intermediate Bond Fund may not: 1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies; 2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein; 3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; 5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; 13 6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; and 7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Non-Fundamental Investment Policies - ----------------------------------- 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 14 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. COLUMBIA CONSERVATIVE HIGH YIELD FUND Fundamental Investment Policies - ------------------------------- Columbia Conservative High Yield Fund may not: 1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended ("1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies; 2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein; 3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. With the exception of the Real Estate Fund, which will invest at least 65% of the value of its total assets in securities of companies principally engaged in the real estate industry, purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities or one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. 5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. 6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. 7. With the exception of the Oregon Intermediate Municipal Bond Fund and the Technology Fund, purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that; (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Non-Fundamental Investment Policies - ----------------------------------- Columbia Conservative 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. 15 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 - -------------------------------------------------------------------------
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 16 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 "emerging markets or frontier 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. COLUMBIA THERMOSTAT FUND invests in Portfolio Funds that may have their own geographic limits. 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, 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, 17 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. 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 18 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 at a specified price and time. A public market exists in 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 - -------------------- 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. 19 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 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 20 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," 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. 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 - -------------------- 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. 21 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 in-tend 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 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. 22 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. 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 23 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 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. 24 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. 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 25 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. 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 26 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 floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity. 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 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. 27 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 Conservative 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 warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. 28 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 treated as "qualified dividend income," as described below. In 29 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. 30 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, CMS 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. 31 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, 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 option(3) 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) - -------------------- 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). 32 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. 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) derived with respect to its business of investing in such stock, securities, or commodities, and with income derived from an interest in a qualified publicly traded partnership 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 or deductions. 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 33 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 Columbia WAM, CMS and CMD are subsidiaries of Columbia Management Group, LLC, ("Columbia Management") that in turn are indirect wholly owned subsidiaries of Bank of America Corporation. The investment portfolios ("Columbia Funds") managed by subsidiaries of Columbia Management are diversified by asset classes, with approximately 50 percent in equity, 30 percent in fixed income, and 20 percent in money market funds. Columbia Management 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 the Trust, 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 the Trust. Mr. Wanger also serves as a Trustee for each of the four series of the Wanger Advisors Trust.
NUMBER OF NAME, POSITION(S) YEAR FIRST PORTFOLIOS IN WITH COLUMBIA ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FUND COMPLEX AND AGE AT APPOINTED DURING OVERSEEN BY OTHER JANUARY 1, 2006 TO OFFICE* PAST FIVE YEARS TRUSTEE/OFFICER DIRECTORSHIPS - ---------------------- -------------- ---------------------------------------- --------------- ------------------------------- TRUSTEES WHO ARE NOT INTERESTED PERSONS OF COLUMBIA ACORN: Margaret Eisen, 52, 2002 Managing Director, CFA Institute since 6 Antigenics, Inc. Trustee 2005; Chief Investment Officer, EAM (biotechnology and drugs); International LLC from 2003 through Global Financial Group 2005; formerly managing director, (venture capital fund of DeGuardiola Advisors; formerly funds); Lehman managing director, North American Brothers/First Trust Income Equities at General Motors Asset Opportunity Fund (high-yield Management; prior thereto, director of closed-end fund). Worldwide Pension Investments for DuPont Asset Management. Jerome Kahn, Jr., 71, 1987 Portfolio manager and stock analyst, 6 None. Trustee (investment adviser), former president, William Harris Investors, Inc. Steven N. Kaplan, 46, 1999 Neubauer Family Professor of 6 Morningstar, Inc. (provider of Trustee Entrepreneurship and Finance, independent investment Graduate School of Business, University research) of Chicago.
34
NUMBER OF NAME, POSITION(S) YEAR FIRST PORTFOLIOS IN WITH COLUMBIA ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FUND COMPLEX AND AGE AT APPOINTED DURING OVERSEEN BY OTHER JANUARY 1, 2006 TO OFFICE* PAST FIVE YEARS TRUSTEE/OFFICER DIRECTORSHIPS - ----------------------- ---------- ------------------------------------------ --------------- --------------------------- David C. Kleinman, 70, 1972 Adjunct professor of strategic 6 Sonic Foundry, Inc. Trustee management, University of Chicago (software); Irex Corp. Graduate School of Business; Business (insulation contracting) consultant. Allan B. Muchin, 71, 1998 Chairman emeritus, Katten Muchin 6 None. Trustee and Vice Zavis Rosenman (law firm). Chairman Robert E. Nason, 69, 1998 Consultant and private investor since 6 None. Trustee and 1998; from 1990-1998, executive Chairman 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. James A. Star, 45 2006 President, Longview Management 6 None. Trustee Group since 2003, prior thereto portfolio manager; vice president, Henry Crown and Company since 1994; president and chief investment officer, Star Partners 1998-2003. John A. Wing, 70, 2002 Partner, Dancing Lion Partner, 6 AmerUs Life Holdings (life Trustee (investment partnership), prior thereto, insurance); LDF, Inc. and Frank Wakely Gunsaulus Professor of Labe Federal Bank Law and Finance, and chairman of the (banking). Center for the Study of Law and Financial Markets, Illinois Institute 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, 1992 President, Columbia WAM since 10 None. 52, October 2003; Chief Investment Officer, Trustee and President Columbia WAM since September 2003; (1) 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 1992 to September 2000; president, Wanger Advisors Trust. 35 Ralph Wanger, 71, 1970 Founder, former president, chief 10 Wanger Advisors Trust (4 Trustee (2) 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; adviser to Columbia WAM from September 2003 to September 2005; 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.
NUMBER OF PORTFOLIOS IN NAME, POSITION(S) YEAR FIRST FUND COMPLEX WITH COLUMBIA ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FOR WHICH OFFICER AND AGE AT APPOINTED DURING ACTS IN SAME OTHER JANUARY 1, 2006 TO OFFICE* PAST FIVE YEARS CAPACITY DIRECTORSHIPS - ----------------------- ---------- ----------------------------------------- ----------------- ------------- OFFICERS OF COLUMBIA ACORN: J. Kevin Connaughton, 2001 Treasurer and CFO of the Columbia 10 None. 41, Funds and Liberty All-Star Funds since Assistant Treasurer December 2000; formerly controller and chief accounting officer of the Columbia Funds and Liberty All-Star Funds from February 1998 to October 2000; treasurer to the Galaxy Funds from September 2002 through November 2005; treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC from December 2002 through December 2004; prior thereto, vice president of Colonial Management Associates from February 1998 to October 2000. Michael G. Clarke, 36, 2004 Chief Accounting Officer and Assistant 10 None. Assistant Treasurer Treasurer of the Columbia Funds, Liberty Funds, Stein Roe Funds and All- Star Funds since October 2004; Managing Director of Columbia WAM since February 2001; 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 and Stein Roe Funds from February 2001 to June 2002. P. Zachary Egan, 37, 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.
36
NUMBER OF NAME, POSITION(S) YEAR FIRST PORTFOLIOS IN WITH COLUMBIA ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FUND COMPLEX AND AGE AT APPOINTED DURING OVERSEEN BY OTHER JANUARY 1, 2006 TO OFFICE* PAST FIVE YEARS TRUSTEE/OFFICER DIRECTORSHIPS - ------------------------ ---------- ------------------------------------------- --------------- ------------- Bruce H. Lauer, 48, 1995 Chief operating officer, Columbia WAM 10 None. Vice President, since April 1995; vice president, Secretary and treasurer and secretary, Wanger Treasurer Advisors Trust; director, Wanger Investment Company PLC and New Americas Small Cap Fund; director, Banc of America Capital Management (Ireland) Ltd. Robert A. Mohn, 44, 1997 Director of domestic research, 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 Louis J. Mendes, 41, 2003 Analyst and portfolio manager, 10 None. Vice President Columbia WAM since 2001; vice president, Wanger Advisors Trust since 2006; prior thereto, analyst and portfolio manager, Merrill Lynch. Christopher Olson, 41, 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, 40, 2004 Analyst and portfolio manager of 10 None. Vice President Columbia WAM since 1998; vice president Wanger Advisors Trust. Michelle Rhee, 33, 2006 Associate General Counsel, Bank of 10 None. Senior Vice President, America; Attorney, Investment Chief Legal Officer and Management Legal Department, Global General Counsel Wealth & Investment Management, since 2004; Associate, Junior Partner, Wilmer Cutler Pickering Hall and Dorr LLP, 1997 to 2004. Linda Roth-Wiszowaty, 2006 Executive Administrator, Columbia WAM 10 None. 36, (since April 2004); prior thereto Assistant Secretary Executive Assistant to the COO. Jeffrey Coleman, 36, 2006 Assistant Treasurer, Wanger Advisors 10 None. Assistant Treasurer Trust since March 2006; Group Operations Manager of Columbia WAM since October 2004); vice president of CDC IXIS Asset Management Services, Inc. (investment management) from August 2000 to September 2004. 37 NUMBER OF NAME, POSITION(S) YEAR FIRST PORTFOLIOS IN WITH COLUMBIA ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FUND COMPLEX AND AGE AT APPOINTED DURING OVERSEEN BY OTHER JANUARY 1, 2006 TO OFFICE* PAST FIVE YEARS TRUSTEE/OFFICER DIRECTORSHIPS - ------------------------ ---------- ------------------------------------------- --------------- ------------- Robert Scales, 53, 2004 Deputy Counsel, Grant Thornton LLP 10 None. Chief Compliance 2002-2004; prior thereto, Associate Officer, Senior Vice general counsel, UBS PaineWebber. President and 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 Columbia WAM. (2) Trustee who is treated as an "interested person" of the Trust and of Columbia WAM, as defined in the 1940 Act, because he is a former officer of the Trust, former employee of Columbia WAM and former consultant to 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, EXCEPT FOR MESSRS. CLARKE, COLEMAN AND CONNAUGHTON AND MS. RHEE, WHOSE ADDRESS IS COLUMBIA MANAGEMENT GROUP LLC, MAIL STOP: MA5-515-11-05, ONE FINANCIAL CENTER, BOSTON, MA 02111. 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, 2005 to each of the Trustees of the Trust:
COMPENSATION TABLE - -------------------------------------------------------------- AGGREGATE COMPENSATION ROM THE FUNDS AND THE NAME OF TRUSTEE COMPLEX(2) - -------------------------------------------------------------- TRUSTEES WHO ARE NOT INTERESTED PERSONS OF COLUMBIA ACORN: Margaret Eisen $ 115,500 Jerome Kahn, Jr. $ 120,000 Steven N. Kaplan (1) $ 105,000 David C. Kleinman $ 81,750 Allan B. Muchin(1) $ 72,000 Robert E. Nason (1) $ 133,500 John A. Wing (1) $ 101,250 James A. Star (3) $ 0 TRUSTEES WHO ARE INTERESTED PERSONS OF ACORN: Charles P. McQuaid $ 0 Ralph Wanger (4) $ 7,875
(1) Includes fees deferred during the year pursuant to a deferred compensation plan. As of December 31, 2005, the value of each of the deferred compensation accounts in the Funds for Messrs. Kahn, Kaplan, Muchin, Nason and Wing was $702,601, $293,722, $126,041, $869,253, and $370,412, respectively. (2) The Funds do not currently provide pension or retirement plan benefits to the Trustees. Columbia Acorn Fund paid $350,100.67 to Robert Scales for his services in 2005. (3) Mr. Star was elected as a trustee on March 7, 2006. (4) Mr. Wanger became eligible for compensation on November 15, 2005. 38 The officers and Trustees affiliated with the Adviser serve without any compensation from the Trust. Columbia Acorn Trust 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 "Legal Proceedings" in the prospectus, 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: - - 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 action proposed 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; - - Beginning in 2005 and not less than every fifth calendar year thereafter, the Trust must hold a meeting of shareholders to elect trustees+; and - - The Board of Trustees must appoint either (a) a full-time senior officer who reports 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 Columbia WAM and its affiliates from supplying services to the Funds and possible economies of scale or (b) an independent compliance consultant and an independent fee consultant with similar responsibilities.++ The Agreement and Declaration of Trust ("Declaration") provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers. - -------------------- + The Trust held a meeting of shareholders on September 27, 2005 to elect trustees. ++ At a meeting of the Board of Trustees held on February 18, 2005, a majority of the trustees, other than interested persons of the Trust or the Adviser, found Promontory Financial Group LLC not unacceptable to serve as the independent compliance consultant ("ICC") to CMD (f/k/a Columbia Funds Distributor, Inc.). At a meeting of the Board of Trustees held on November 16, 2004, the trustees unanimously voted to appoint Robert Scales as the Senior Vice President of the Trust and to designate Mr. Scales as the individual responsible for performing the duties and responsibilities of the Senior Officer as set forth in the Assurance of Discontinuance dated February 9, 2005 among the Attorney General of the State of New York, Columbia Management Advisors, Inc. and CMD, including the responsibilities of the independent fee consultant. 39
COMMITTEES The standing committees of the Trust's Board of Trustees are: NO. OF MEETINGS COMMITTEE MEMBERS FUNCTION HELD IN 2005 - -------------------- ---------------------- -------------------------------------------------------- --------------- Executive Charles P. McQuaid Exercise powers of the Board of Trustees during 1 Allan B. Muchin intervals between meetings of the Board, with certain Robert E. Nason exceptions. Alternate: Ralph Wanger Audit David C. Kleinman Make recommendations to the Board of Trustees 2 (chairman) regarding the selection of independent auditors for the Jerome Kahn, Jr. Trust, confer with the independent auditors regarding Robert E. Nason the scope and results of each audit and carry out the John A. Wing provisions of its charter. Valuation Charles P. McQuaid Determine valuations of portfolio securities held by any 22 (chairman) series of the Trust in instances as required by the Ralph Wanger valuation procedures adopted by the Board of Trustees. Robert E. Nason Alternates: Margaret Eisen Jerome Kahn, Jr. Steven N. Kaplan David C. Kleinman Allan B. Muchin John A. Wing Contract Margaret Eisen (chair) Make recommendations to the Board of Trustees 4 Allan B. Muchin regarding the continuation or amendment of the Jerome Kahn, Jr. investment advisory agreements between the Trust and David C. Kleinman the Adviser and other agreements with third-party service providers. Governance Allan B. Muchin Make recommendations to the Board of Trustees 2 (chairman) regarding committees of the board and committee Margaret Eisen assignments, make recommendations to the Board Steven N. Kaplan regarding the composition of the board and candidates Robert E. Nason for election as non-interested 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 David C. Kleinman Examine methods of mutual fund performance 0 Performance Analysis (chairman) measurement and make recommendations to the Board Steven N. Kaplan of Trustees about the types of performance reports to be Charles P. McQuaid provided to the Board. John A. Wing Compliance John A. Wing Provide oversight of the monitoring processes and 15 (chairman) controls regarding the Trust with legal, regulatory and Margaret M. Eisen internal rules, policies, procedures and standards other Steven N. Kaplan than those relating to accounting matters and oversight Jerome Kahn, Jr. of compliance by the Trust's investment adviser, principal underwriter and transfer agent.
40 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, 2005, Columbia WAM had approximately $27.1 billion in assets under management, including the Funds. Columbia WAM and its predecessor have managed mutual funds, including Columbia Acorn Fund since 1992. Columbia WAM is an indirect wholly owned subsidiary of Columbia Management, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to April 1, 2004, Columbia Management 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 Columbia Management. CMA also may provide administrative and operational services to the Funds. 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. A discussion of factors considered by the Board of Trustees in approving the Advisory Agreement can be found in the Trust's annual report for the period ended December 31, 2005. 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, 2005, 2004 and 2003 were as follows:
FUND 2005 2004 2003 Columbia Acorn $ 94,524,000 $ 79,884,000 $52,118,000 Fund Columbia Acorn $ 18,872,000 $ 14,433,000 $11,792,000 International Columbia Acorn $ 8,979,000 $ 6,825,000 $ 4,194,000 USA Columbia Acorn gross advisory fee: $ 12,294,000 gross advisory fee: $ 8,663,000 $ 3,817,000 Select exp. reimb: (0) exp. reimb: (0) (0) ----------------------------------- --------------------------------- ------------ net advisory fee: $12,294,0009 net advisory fee: $ 8,663,000 $ 3,817,000 41 FUND 2005 2004 2003 Columbia Acorn gross advisory fee: $707,000 gross advisory fee: $431,000 $ 330,000 International exp. reimb: (31,000) exp. reimb: (131,000) (147,000) ----------------------------------- --------------------------------- ------------ Select net advisory fee: $676,000 net advisory fee: $300,000 $ 183,000 Columbia gross advisory fee: $205,000 gross advisory fee: $177,000 $ 49,000 Thermostat Fund exp. reimb: (300,000) exp. reimb.: (403,000) (350,000) ----------------------------------- --------------------------------- ------------ net advisory fee: ($95,000) net advisory fee: ($226,000) ($301,000)
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 ---------------------------- --------------- Up to $700 million 0.74% $700 million to $2 billion 0.69% $2 billion to $6 billion 0.64% $6 billion and over 0.63% COLUMBIA ACORN INTERNATIONAL Average Daily Net Assets Annual Fee Rate ---------------------------- --------------- Up to $100 million 1.19% $100 million to $500 million 0.94% $500 million and over 0.74% COLUMBIA ACORN USA Average Daily Net Assets Annual Fee Rate ---------------------------- --------------- Up to $200 million 0.94% $200 million to $500 million 0.89% $500 million and over 0.84% COLUMBIA ACORN SELECT Average Daily Net Assets Annual Fee Rate ---------------------------- --------------- Up to $700 million 0.85% $700 million and over 0.80% COLUMBIA ACORN INTERNATIONAL SELECT Annual Fee Rate --------------- All assets 0.94% COLUMBIA THERMO STAT 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 42 distribution and service fees and certain other expenses) do not exceed 0.25% annually through April 30, 2007 for Class Z, Class A, Class B and Class C shares. 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 CMS has been revised so that the Funds pay CMS 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 voluntarily agreed to waive a portion of those expenses. 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 CMS. PORTFOLIO MANAGERS Charles McQuaid is the lead portfolio manager for Columbia Acorn Fund and 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. Christopher Olson is the lead portfolio manager for Columbia Acorn International Select. Other Accounts Managed by Portfolio Managers -------------------------------------------- The portfolio managers also have responsibility for the day-to-day management of accounts other than the Funds, including separate accounts and unregistered funds. Information regarding those other accounts is set forth below. The advisory fees received by Columbia WAM in connection with the management of the Funds and other accounts are not based on the performance of the Funds or the other accounts.
Number of Other Accounts Managed and Assets by Account Type as of December 31, 2005 ------------------------------------------------------------------------- Registered Investment Companies (other than Other Pooled Portfolio Manager the Funds) Investment Vehicles Other Accounts - -------------------------------------------------------------------------------------------- Ben Andrews Number: 1 Number: 0 Number: 2 Assets: $102,736,000 Assets: $0 Assets: $2,000,000 P. Zachary Egan Number: 1 Number: 0 Number: 11 Assets: $170,684,000 Assets: $0 Assets: $1,500,000 Charles P. Number: 0 Number: 2 Number: 8 McQuaid Assets: $0 Assets: $195,463,000 Assets: $1,189,013,000 Louis J. Mendes Number: 2 Number: 0 Number: 8 Assets: $1,143,887,000 Assets: $0 Assets: $1,900,000 Robert A. Mohn Number: 2 Number: 1 Number: 6 Assets: $1,553,440,000 Assets: $407,078,000 Assets: $1,226,000,000 Christopher Olson Number: 2 Number: 0 Number: 1 Assets: $1,017,224,000 Assets: $0 Assets: $250,000 - --------------------------------------------------------------------------------------------
Compensation ------------ As of December 31, 2005, 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, and Christopher Olson each received compensation in the form of salary and bonus. In addition, Messrs. Andrews, Egan, McQuaid and Mohn 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 participated in a 43 supplemental pool for Columbia WAM employees that was established in connection with the acquisition of Columbia WAM and was based on Columbia WAM's recent performance. All analysts and portfolio managers have performance benchmarks. Analyst performance is compared to assigned industry or region stock performance within benchmark indices while portfolio manager performance is compared to entire benchmark indices. 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 Acorn International: S&P/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: S&P/Citigroup (World ex-U.S.) Cap Range $2-10B; and (6) Columbia Thermostat: Standard & Poor's 500 Composite Stock Price Index (equities), and Lehman U.S. Credit Intermediate Bond Index (debt). Performance compared to benchmark indices is the dominant performance evaluation factor for all analysts and managers. Industry (or country) weighting recommendations are the second most important factor for analysts. Other factors are assets managed, new analyst mentoring, teamwork, and managerial, marketing, compliance and other qualitative contributions. Analysts and managers are positioned in a number of compensation tiers based on cumulative performance. Excellent performance results in advancement to a higher tier each two or three years, until the highest tier is reached. Higher tiers have higher base compensation levels and wider bonus ranges. While cumulative performance places analysts and managers in tiers, current year performance drives changes in cash bonus levels. Cash incentive bonuses vary by tier, and can range between a fraction of base pay to several times base pay; the objective being to provide very competitive total compensation for high performers. Typically, a very high proportion of an analyst's or manager's bonus is paid in cash with a smaller proportion going into an investment program where the employee can select Columbia mutual funds as their investment vehicle. Bank of America restricted stock or options may also be part of an individual's compensation. These mutual fund investments and Bank of America restricted stock or options vest over three years. Ownership of Securities ----------------------- At December 31, 2005, 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 Columbia Acorn Columbia Columbia Acorn Columbia Columbia International Thermostat Acorn Fund International Acorn USA Acorn Select Select Fund - ------------------------------------------------------------------------------------------------ Ben Andrews N/A N/A N/A $ 500,000 - N/A N/A $ 1,000,000 P. Zachary N/A $ 100,001- N/A N/A N/A N/A Egan $ 500,000 Charles P. Over N/A N/A N/A N/A Over McQuaid $ 1,000,000 $ 1,000,000 Louis J. N/A $ 100,001- N/A N/A N/A N/A Mendes $ 500,000 Robert A. $ 100,001- N/A $ 100,001- N/A N/A N/A Mohn $ 500,000 $ 500,000 Christopher N/A N/A N/A N/A $ 100,001- N/A Olson $ 500,000 - ------------------------------------------------------------------------------------------------
Potential conflicts of interest in managing multiple accounts ------------------------------------------------------------- Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts that Columbia WAM believes are faced by investment professionals at most major financial firms. Columbia WAM and the Trustees of the Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts. 44 The management of accounts with different advisory fee rates and/or fee structures may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others: - The most attractive investments could be allocated to higher-fee accounts. - The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time. - The trading of other accounts could be used to benefit higher-fee accounts (front- running). - The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation. Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, Columbia WAM's investment professionals do not have the opportunity to invest in client accounts, other than the Funds. A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, Columbia WAM's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. "Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. Columbia WAM and the Funds' Trustees have adopted compliance procedures that provide that any transactions between the Funds and another Columbia-advised account are to be made at an independent current market price, as required by law. Another potential conflict of interest may arise based on the different investment objectives and strategies of the Funds and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies. The Funds' portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Funds. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to a Fund, a 45 portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the Funds and/or accounts that he or she manages. Columbia WAM or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of a Fund and/or accounts that provide greater overall returns to the investment manager and its affiliates. The Funds' portfolio managers may also face other potential conflicts of interest in managing the Funds, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, the Funds' portfolio managers may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at Columbia WAM, including the Funds' portfolio managers, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by Columbia WAM and the Funds, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the Funds. 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 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. 46 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. 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. 47 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 2005. The following table shows the total brokerage commissions paid by each Fund during the last three fiscal years. BROKERAGE COMMISSIONS (dollars in thousands)
COLUMBIA ACORN FUND Years Ended ----------- 2005 2004 2003 -------- -------- ------- Total commissions $ 14,361 $ 12,154 $ 8,476
COLUMBIA ACORN INTERNATIONAL Years Ended ----------- 2005 2004 2003 ------- -------- ------- Total commissions $ 4,777 $ 12,154 $ 3,113
COLUMBIA ACORN USA Years Ended ----------- 2005 2004 2003 ------- -------- ------- Total commissions $ 854 $ 740 $ 592
48
COLUMBIA ACORN SELECT Years Ended ----------- 2005 2004 2003 ------- -------- ------- Total commissions $ 3,484 $ 1,608 $ 995
COLUMBIA ACORN INTERNATIONAL SELECT Years Ended ----------- 2005 2004 2003 ------- -------- ------- Total commissions $ 196 $ 150 $ 105
COLUMBIA THERMOSTAT FUND Years Ended ----------- 2005 2004 2003 ------- -------- ------- 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, 2005, the Funds held securities of their regular brokers or dealers as set forth below:
COLUMBIA ACORN FUND ISSUER VALUE (dollars in thousands) SEI Investments Company $ 87,135 Eaton Vance Corp. $ 81,806 Investment Technology Group $ 24,454 Hong Kong Exchanges and Clearing $ 37,318 Nuveen Investments Inc. $ 70,621 State Street Boston Corp. $ 39,959 COLUMBIA ACORN INTERNATIONAL ISSUER VALUE (dollars in thousands) Perpetual Trustees Australia $ 17,448 Hong Kong Exchanges and Clearing $ 24,879 COLUMBIA ACORN SELECT ISSUER VALUE (dollars in thousands) SEI Investments Company $ 26,992 Janus Capital Group Inc. $ 46,575 Nuveen Investments Inc. $ 41,555 COLUMBIA ACORN INTERNATIONAL SELECT ISSUER VALUE (dollars in thousands) Hong Kong Exchanges and Clearing $ 2,820
Directed transactions include transactions that the Fund or Columbia WAM directs to a registered broker-dealer, through an agreement or understanding or otherwise through internal allocation procedures, because of research services provided by 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. 49
COLUMBIA ACORN FUND (dollars in thousands) Total amount of directed brokerage Total amount of directed transactions during 2005 brokerage commissions paid $1,934,265 during 2005 $3,940 COLUMBIA ACORN INTERNATIONAL (dollars in thousands) Total amount of directed brokerage Total amount of directed transactions during 2005 brokerage commissions paid $1,694,734 during 2005 $3,279 COLUMBIA ACORN USA (dollars in thousands) Total amount of directed brokerage Total amount of directed transactions during 2005 brokerage commissions paid $ 95,100 during 2005 $ 186 COLUMBIA ACORN SELECT (dollars in thousands) Total amount of directed brokerage Total amount of directed transactions during 2005 brokerage commissions paid $ 163,130 during 2005 $ 384 COLUMBIA ACORN INTERNATIONAL SELECT (dollars in thousands) Total amount of directed brokerage Total amount of directed transactions during 2005 brokerage commissions paid $ 73,380 during 2005 $ 157 COLUMBIA THERMOSTAT FUND (dollars in thousands) Total amount of directed brokerage Total amount of directed transactions during 2005 brokerage commissions paid $ 0 during 2005 $ 0
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, at the time of the transaction, Columbia WAM or CMD, or any of their affiliates. ADMINISTRATION AGREEMENT Columbia Acorn Trust 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 Trust shall pay Columbia WAM for its services, a fee accrued daily and paid monthly at the following annual rates: 0.05% of Columbia Acorn Trust's average daily net assets up to $8 billion of assets; 0.04% of Columbia Acorn Trust's average daily net assets from $8 billion to $16 billion of assets; and 0.03% of Columbia Acorn Trust'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 Trust; (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 Trust; 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 Columbia Management. The administrative fees paid to the Adviser by each Fund for the fiscal years ended December 31, 2005, 2004 and 2003 were as follows: 50
FUND 2005 2004 2003 Columbia Acorn Fund $6,207,000 $5,759,000 $3,905,000 Columbia Acorn International $1,005,000 $ 838,000 $ 703,000 Columbia Acorn USA $ 425,000 $ 356,000 $ 227,000 Columbia Acorn Select $ 632,000 $ 461,000 $ 212,000 Columbia Acorn International $ 32,000 $ 22,000 $ 17,000 Select Columbia Thermostat Fund $ 87,000 $ 84,000 $ 25,000
PRINCIPAL UNDERWRITER CMD, One Financial Center, Boston, MA 02111, is the principal underwriter of the Funds' shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors. CMD'S CHARGES AND EXPENSES SALES CHARGES (dollars in thousands)
Class A Shares Year ended December 31, 2005 ------------------------------------------------------ Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- -------------- ---------- ---------- -------------- ----------- Aggregate initial sales charges on $ 4,777 $ 716 $ 315 $ 1,808 $ 67 $ 398 Fund share sales Initial sales charges retained by CMD $ 812,402 $ 115,750 $ 51,780 $ 271,751 $ 10,833 $ 61,262 Aggregate contingent deferred sales $ 1,941 $ 3 $ 0 ($1,829) $ 1 $ 5 charges (CDSC) on Fund redemptions retained by CMD
Class B Shares Year ended December 31, 2005 ---------------------------------------------------- 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 $ 2,147,740 $ 92,069 $ 122,138 $ 375,163 $ 12,539 $ 162,027 CMD
Class C Shares Year ended December 31, 2005 ---------------------------------------------------- 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 $ 58,070 $ 5,462 $ 1,160 $ 22,676 $ 1,193 $ 7,903 CMD
51
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 $ 4,239 $ 366 $ 173 $ 2,433 $ 30 $ 1,084 share sales Initial sales charges retained by CMD $ 688,302 $ 57,154 $ 27,933 $ 369,071 $ 6,127 $ 169,202 Aggregate contingent deferred sales $ 19,547 $ 120 $ 827 $ 11,665 $ 0 $ 9 charges (CDSC) on Fund redemptions retained by CMD
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 $ 2,139,741 $ 83,937 $ 148,011 $ 329,294 $ 11,410 $ 164,282 CMD
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 $ 134,065 $ 5,500 $ 8,238 $ 37,178 $ 84 $ 14,900 CMD
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 $ 10,178 $ 217 $ 538 $ 2,305 $ 11 $ 1,204 share sales Initial sales charges retained by CMD $ 1,333 $ 31 $ 81 $ 331 $ 1 $ 179 Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by CMD $ 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 CMD $ 1,914 $ 71 $ 125 $ 146 $ 9 $ 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 CMD $ 118 $ 7 $ 4 $ 12 $ 1 $ 4
(a) Rounds to less than one. 52 OWNERSHIP OF THE FUND As of April 1, 2006, 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 13.50% 101 Montgomery Street Columbia Acorn International Z 11.15% San Francisco, CA 94104-4122 Columbia Acorn USA Z 8.00% Columbia Acorn Select Z 12.89% Columbia Acorn International Select Z 11.31% State of Illinois Employees Deferred Columbia Acorn Fund Z 8.32% Compensation Plan(2) PO Box 19208 Springfield, IL 62794-9208 Fidelity Investments Columbia Acorn Fund Z 6.33% 100 Magellan Way #KW1C Columbia Acorn USA Z 25.06% Covington, KY 41015-1999 Columbia Acorn Select Z 12.54% Bank of New York Columbia Acorn USA Z 8.88% FBO New York State Deferred Compensation Plan 1 Wall St., Floor 12 New York, NY 10286-001 Vanguard Fiduciary Trust Co.(1) Columbia Acorn USA Z 6.39% PO Box 2600 Valley Forge, PA 19482-2600 Bank of America NA.(1) Columbia Acorn Fund Z 7.70% 411 N. Akard St. Columbia Acorn International 22.96% Dallas, TX 75201-3307 Columbia Acorn USA Z 6.47% Columbia Acorn Select Z 25.69% Columbia Acorn International Select Z 46.91% Ralph Wanger Columbia Thermostat Fund Z 5.83% 191 North Wacker, Suite 1500 Chicago, IL 60606 Columbia Management Advisors Inc. Columbia Thermostat Fund Z 20.62% 245 Summer St. FL 3 MS:MADE 11603H Boston, MA 02210-1129 LaSalle Bank National Association.(1) Columbia Thermostat Fund Z 6.70% PO Box 1443 Chicago, IL 60690-1443 Charles Schwab & Co. Inc.(1) Columbia Acorn Fund A 18.44% 101 Montgomery Street Columbia Acorn International A 17.15% San Francisco, CA 94104-4122 Columbia Acorn USA A 18.52% Columbia Acorn Select A 30.47% Columbia Acorn International Select A 20.40% Columbia Thermostat A 7.79%
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PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND SHARES HELD - -------------------------------------- ------------------------------------- -------------- Merrill Lynch Pierce Fenner & Smith(1) Columbia Acorn Fund A 5.52% 4800 Deer Lake Drive Columbia Acorn USA A 7.48% Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. (1) Columbia Acorn Fund B 8.26% 333 W. 34th Street Columbia Acorn International B 6.97% New York, NY 10001-2402 Columbia Acorn USA B 10.34% Columbia Acorn Select B 6.00% Citigroup Global Markets, Inc. (1) Columbia Acorn Fund C 16.25% 333 W. 34th Street Columbia Acorn International C 14.21% New York, NY 10001-2402 Columbia Acorn USA C 10.94% Columbia Acorn Select C 12.06% Columbia Acorn International Select C 6.10% Columbia Thermostat C 7.15% Merrill Lynch Pierce Fenner & Smith(1) Columbia Acorn Fund C 16.22% 4800 Deer Lake Drive Columbia Acorn International C 6.19% Jacksonville, FL 32246-6484 Columbia Acorn USA C 12.15% Columbia Acorn Select C 13.70% Columbia Acorn International Select C 5.65% Piper Jaffray(1) Columbia Acorn International Select C 5.88% 706 Second Avenue South Minneapolis, MN 55402-3003
(1) Shares are held of record on behalf of customers, and not beneficially. (2) Shares are held of record on behalf of plan participants, and not beneficially. At April 1, 2006, the Trustees and officers of the Trust as a group owned beneficially 2.1% and 5.0% of the outstanding Class Z shares of COLUMBIA THERMOSTAT and COLUMBIA ACORN INTERNATIONAL SELECT, respectively, and [less than 1%] of each other class of shares of each Fund. As of April 1, 2006, none of the independent Trustees owns beneficially or of record any shares of Columbia WAM or CMD, or of any person directly or indirectly controlling, controlled by, or under common control with Columbia WAM or CMD. 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, 2005 (i) in the Funds and (ii) in the funds in the Columbia Funds Complex. 54
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY SECURITIES OWNED 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 Over $100,000 Columbia Acorn International Over -$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 None Columbia Acorn USA Over-$100,000 Columbia Acorn Select None Columbia Acorn International Over $100,000 Select Columbia Thermostat Fund None Steven N. Kaplan* Columbia Acorn Fund $ 10,001-$50,000 $10,001-$50,000 Columbia Acorn International $ 10,001-50,000 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 $50,001-$100,000 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 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 $ 50,001-$100,000 Over $100,000 Columbia Acorn International $ 50,001-$100,000 Columbia Acorn USA $ 10,001-$50,000 Columbia Acorn Select $ 10,001-$50,000 Columbia Acorn International $ 1-$10,000 Select Columbia Thermostat Fund $ 10,001-$50,000
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AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY SECURITIES OWNED TRUSTEE IN NAME OF TRUSTEE NAME OF FUND IN EACH FUND COLUMBIA FUNDS COMPLEX - --------------- ---------------------------- ----------------------- ------------------------- James A. Star Columbia Acorn Fund $ 10,001-$50,000 Over $100,000 Columbia Acorn International $ 50,001-$100,000 Columbia Acorn USA $ 10,001-$50,000 Columbia Acorn Select Over $100,000 Columbia Acorn International None Select Columbia Thermostat Fund None John A. Wing* Columbia Acorn Fund Over $100,000 Over $100,000 Columbia Acorn International $ 50,001-$100,000 Columbia Acorn USA over $100,000 Columbia Acorn Select None Columbia Acorn International None Select Columbia Thermostat Fund over $100,000
* In addition to the value of the shares owned as set forth above, Messrs. Kahn, Kaplan, Muchin, 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. Kahn, Kaplan, Muchin, Nason and Wing was $702,601, $293,722, $126,041, $869,253 and $370,412, respectively.
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY SECURITIES OWNED 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 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 56 for each class except Class Z. Under the Plan, each Fund pays CMD monthly service and distribution fees at the annual rates described in the Prospectus for that Funds' Class A, Class B and Class C shares. CMD 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 CMD's expenses, CMD may realize a profit from the fees. The Plan authorizes any other payments by the Funds to CMD 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 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)
Class Z Shares Year ended December 31,2005 ----------------------------------------- Columbia Acorn International Columbia Acorn International Select ----------------------------- ------------------------------------ Contingent redemption fees charged on Fund share redemptions retained by the Fund $ 65 $ 9
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 $ 86 $ 4
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12B-1 FEES PAID TO CMD IN 2005 (dollars in thousands) Columbia Acorn Fund $30,147 Columbia Acorn International $ 1,139 Columbia Acorn USA $ 1,341 Columbia Acorn International Select $ 100 Columbia Acorn Select $ 4,478 Columbia Thermostat Fund $ 1,151
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Class A, B and C shares of the Funds for the fiscal year ended December 31, 2005 were: COLUMBIA ACORN FUND
Year ended December 31, 2005 ------------------------------ Class A Shares Class B Shares Class C Shares --------------- --------------- --------------- Fees to FSFs $ 10,156 $ 4,843 $ 4,327 Cost of sales material relating to the Fund (including printing and mailing expenses) 713 100 159 Allocated travel, entertainment and other promotional expenses (including advertising) 1,333 187 298
COLUMBIA ACORN USA
Year ended December 31, 2005 ------------------------------ Class A Shares Class B Shares Class C Shares --------------- --------------- --------------- Fees to FSFs $ 473 $ 244 $ 169 Cost of sales material relating to the Fund (including printing and mailing expenses) 49 6 7 Allocated travel, entertainment and other promotional expenses (including advertising) 92 11 13
COLUMBIA ACORN SELECT
Year ended December 31, 2005 ------------------------------ Class A Shares Class B Shares Class C Shares --------------- --------------- --------------- Fees to FSFs $ 1,881 $ 1,192 $ 773 Cost of sales material relating to the Fund (including printing and mailing expenses) 208 24 35 Allocated travel, entertainment and other promotional expenses (including advertising) 389 45 65
COLUMBIA ACORN INTERNATIONAL
Year ended December 31, 2005 ------------------------------ Class A Shares Class B Shares Class C Shares --------------- --------------- --------------- Fees to FSFs $ 276 $ 424 $ 224 Cost of sales material relating to the Fund (including printing and mailing expenses) 49 14 12 Allocated travel, entertainment and other promotional expenses (including advertising) 92 26 22
COLUMBIA ACORN INTERNATIONAL SELECT
Year ended December 31, 2005 ------------------------------ Class A Shares Class B Shares Class C Shares --------------- --------------- --------------- Fees to FSFs $ 19 $ 45 $ 21 Cost of sales material relating to the Fund (including printing and mailing expenses) 4 2 1 Allocated travel, entertainment and other promotional expenses (including advertising) 8 3 2
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COLUMBIA THERMOSTAT FUND Year ended December 31, 2005 ---------------------------- Class A Shares Class B Shares Class C Shares --------------- --------------- -------------- Fees to FSFs $ 214 $ 321 $ 123 Cost of sales material relating to the Fund (including printing and mailing expenses) 15 11 6 Allocated travel, entertainment and other promotional expenses (including advertising) 28 20 11
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 CMD 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. 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. 59 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 Trust 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, (2) the day next following the filing of the information - --------------------- with the SEC in a required filing, or (3) for money market funds in the Columbia Funds complex, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. 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 Columbia Management and its affiliates. The Funds' policies prohibit Columbia Management 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 www.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. A Fund, Columbia Management or their 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. 60 OTHER DISCLOSURES 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. 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 day-to-day business operations. In addition to Columbia Management and its affiliates, these service providers include the Funds' custodian (State Street Bank & Trust Company) and sub-custodians, independent registered public accounting firm (PricewaterhouseCoopers LLP), legal counsel (Bell, Boyd & Lloyd LLC), financial printer (Financial Graphic Services, Inc.), and the Funds' proxy voting service provider(Institutional Shareholder Services), the Funds' proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia WAM's trading systems (InvestorTool, Inc. and Thomson Financial). 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. 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 the Bank 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 the Bank 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 Bank'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 value 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 the Bank and may purchase or sell securities from or to the Bank. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP, located at One North Wacker, Chicago, IL 60606, serves as the Funds' 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 61 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. We value a security at a fair value when an event has occurred after the last available market price and before the close of the NYSE that materially affects 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 security is valued at a fair value, the value may be higher or lower than the value used by 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. The use of an independent fair value pricing service is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. 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. 62 Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) when a significant event has occurred that may affect the securities of a single issuer, such as a merger, bankruptcy or significant issuer specific development; (ii) when a significant event has occurred that may affect an entire market, such as a natural disaster or significant governmental action; and (iii) when a non-significant event has occurred such as a market's closing early or not opening, security trading halt or pricing of a nonvalued, restricted or nonpublic security. 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. In addition, you may, subject to the approval of the Trust, purchase shares of a Fund with securities that are held in the Funds' portfolio (or, rarely, with securities that are not currently held in the portfolio but that are eligible for purchase by the Fund [consistent with the Fund's investment objectives and restrictions]) that have a value that is readily ascertainable in accordance with the Trust's valuation policies. Should the Trust approve your purchase of a Fund's shares with securities, the Trust would follow its purchase-in-kind procedures and would value the securities tendered in payment (determined as of the next close of regular session trading on the New York Stock Exchange after receipt of the purchase order) pursuant to the Trust's valuation procedures as then in effect, and you would receive the number of Fund shares having a net asset value on the purchase date equal to the aggregate purchase price. The investment minimum, if any, for initial investments (by purchase, exchange or certain transfers) of each class of shares of the Funds is set forth in the Prospectuses. The investment minimum does not apply under certain circumstances determined by the Funds to be appropriate from time to time and consistent with the interests of shareholders, including with respect to the following accounts: o Class A share accounts resulting from the automatic conversion of Class B shares; o Accounts established as a result of the limitation on the maximum purchase of Class B shares as described in the Prospectus; o Certain specified re-registrations of accounts, such as resulting from divorce, death of a shareholder, a change in the shareholder's broker, or certain IRA conversions; o Investments by funds of funds or state tuition plans organized under Section 529 of the Internal Revenue Code; and o Positions resulting from the use of a reinstatement provision described under paragraph 3 of the Net Asset Value Eligibility Guidelines in the Statement. 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 CMS, 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, CMD'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 CMD 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 CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charges. Such charges generally reimburse CMD 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. CMS 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 CMS, provided the new FSF has a sales agreement with CMD. Shares credited to an account are transferable upon written instructions in good order to CMS 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 CMS for deposit to your account. ADDITIONAL INVESTOR SERVICING PAYMENTS The Funds, along with the transfer agent, distributor and/or investment adviser may pay significant amounts to financial intermediaries (as defined below), including other Bank of America affiliates, for providing the types of services that would typically be provided directly by a Fund's transfer agent. The level of payments made to financial intermediaries 63 may vary. A number of factors may be considered in determining payments to a financial intermediary, including, without limitation, the nature of the services provided to shareholders or retirement plan participants that invest in the Fund through retirement plans. These services may include sub-accounting, sub-transfer agency or similar recordkeeping services, shareholder or participant reporting, shareholder or participant transaction processing, and/or the provision of call center support ("additional shareholder services"). These payments for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis for those classes of shares that pay a service fee pursuant to a 12b-1 Plan, and 0.40% of total Fund assets in the program on an annual basis for those classes of shares that do not pay service fees pursuant to a 12b-1 Plan. The Fund's transfer agent, distributor, investment adviser or their affiliates will pay such amounts from their own resources to financial intermediaries in connection with the provision of these additional shareholder services and other services (See "Additional Financial Intermediary Payments" for more information including a list of the financial intermediaries, as of the date of this SAI, receiving such payments). For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment advisor, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with CMD or one of its affiliates. The Funds may also make additional payments to financial intermediaries that charge networking fees for certain services provided in connection with the maintenance of shareholder accounts through the NSCC. ADDITIONAL FINANCIAL INTERMEDIARY PAYMENTS As described above and in the section "12b-1 Plan, Contingent Deferred Sales Charges and Conversion of Shares", financial intermediaries may receive different commissions, sales charge reallowances and other payments with respect to sales of different classes of shares of the Funds. These other payments may include servicing payments to retirement plan administrators and other institutions at rates up to those described below under "Investor Servicing Payments". For purposes of this section the term "financial intermediary" includes any broker, dealer, bank, bank trust department, registered investment advisor, financial planner, retirement plan or other third party administrator and any other institution having a selling, services or any similar agreement with CMD or one of its affiliates. CMD, Columbia WAM and their affiliates may pay additional compensation to selected financial intermediaries, including other Bank of America affiliates, under the categories described below. These categories are not mutually exclusive, and a single financial intermediary may receive payments under all categories. A financial intermediary may also receive payments described above in "Additional Investor Servicing Payments". These payments may create an incentive for a financial intermediary or its representatives to recommend or offer shares of a Fund to its customers. The amount of payments made to financial intermediaries may vary. In determining the amount of payments to be made, CMD, Columbia WAM and their affiliates may consider a number of factors, including, without limitation, asset mix and length or relationship with the financial intermediary, the size of the customer/shareholder base of the financial intermediary, the manner in which customers of the financial intermediary make investments in the Funds, the nature and scope of marketing support or services provided by the financial intermediary (as more fully described below), and the costs incurred by the financial intermediary in connection with maintaining the infrastructure necessary or desirable to support investments in the Funds. These additional payments by CMD, Columbia WAM or their affiliates are made pursuant to agreements between CMD, Columbia WAM and their affiliates and financial intermediaries and do not change the price paid by investors for the purchase of a share, the amount a Fund will receive as proceeds from such sales, or the distribution (12b-1) fees and expenses paid by the Fund as shown under the heading "Fees and Expenses" in the Fund's prospectus. MARKETING SUPPORT PAYMENTS CMD, Columbia WAM or their affiliates may make payments, from their own resources, to certain financial intermediaries, including other Bank of America affiliates, for marketing support services, including, but not limited to, business planning assistance, educating financial intermediary personnel about the Funds and shareholder financial planning needs, placement on the financial intermediary's preferred or recommended fund list or otherwise identifying a Fund as being part of a complex to be accorded a higher degree of marketing support than complexes not making such payments, access to sales meetings, sales representatives and management representatives of the financial intermediary, client servicing, and systems infrastructure support. These payments are generally based upon one or more of the following factors: average net assets of the mutual funds distributed by CMD attributable to that financial intermediary, gross sales of the mutual funds distributed by CMD attributable to that financial intermediary, reimbursement of ticket charges (fees that a financial intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. 64 While the financial arrangements may vary for each financial intermediary, the marketing support payments to each financial intermediary are generally expected to be between 0.02% and 0.10% (between 0.03% and 0.12% in the case of the Money Market Funds) on an annual basis for payments based on average net assets of the Funds attributable to the financial intermediary, and between 0.10% and 0.25% on an annual basis for firms receiving a payment based on gross sales of the Funds (other than the Money Market Funds) attributable to the financial intermediary. CMD or its affiliates may make payments in materially larger amounts or on a basis materially different from those described above when dealing with other affiliates of Bank of America. Such increased payments to the other Bank of America affiliate may enable the other Bank of America afilliate to offset credits that it may provide to its customers in order to avoid having such customers pay fees to multiple Bank of America entities in connection with the customer's investment in the Fund. As of the date of this SAI, CMD, Columbia WAM or their affiliates had agreed to make marketing support payments to the following financial intermediaries or their affiliates:
A.G. Edwards & Sons, Inc. J.J.B. Hilliard, W.L. Lyons, Inc. AIG Advisor Group Lincoln Financial Advisors Corp. Ameriprise Financial Services, Inc. Linsco/Private Ledger Corp. (LPL) AXA Advisors, LLC Mellon Financial Markets, LLC Banc of America Securities LLC Merrill Lynch, Pierce, Fenner & Smith Incorporated Banc of America Securities Limited Money Market One Bank of America, N.A. Morgan Stanley DW Inc. Bank of New York New York State Deferred Compensation Board Bear Stearns & Co. Inc. Pershing LLC BMO Nesbitt Burns PNC Bank, N.A. Brown Brothers Harriman & Co. Raymond James & Associates, Inc. Chicago Mercantile Exchange Raymond James Financial Services, Inc. Citicorp Investment Services Security Benefit Life Insurance Company Commonwealth Financial Network SEI Investments Inc. Custodial Trust Company Silicon Valley Bank FAS Corp. Summit Bank Ferris Baker Watts, Incorporated Sungard Institutional Brokerage Inc. Fidelity Brokerage Services, Inc. Sun Life Assurance Company of Canada FinancialOxygen, Inc. TIAA-CREF Life Insurance Company Genworth Financial, Inc. Transamerica Corporation Goldman, Sachs & Co. UBS Financial Services Inc. Harris Corp. US Bank Trust Huntington Capital Corp. Wachovia Securities LLC Independent Financial Markets Group, Inc. Webster Investment Services, Inc. ING Group Wells Fargo Investments, LLC
65 CMD, Columbia WAM or their affiliates may enter into similar arrangements with other financial intermediaries from time to time. Therefore, the preceding list is subject to change at any time without notice. INVESTOR SERVICING PAYMENTS CMD, Columbia WAM or their affiliates may also make payments to certain financial intermediaries, including other Bank of America affiliates, that provide investor services to retirement plans and other investment programs to compensate financial intermediaries for a variety of services they provide to such programs. These amounts are in addition to amounts that may be paid on behalf of the Funds (see "Additional Investor Servicing Payments") and may be in addition to the marketing support payments paid by CMD, Columbia WAM or their affiliates described above. A financial intermediary may perform program services itself or may arrange with a third party to perform program services. These investor services may include sub-accounting, sub-transfer agency, similar shareholder or participant recordkeeping, shareholder or participant reporting, or shareholder or participant transaction processing. Payments by CMD, Columbia WAM or their affiliates for investor servicing support vary by financial intermediary but generally are not expected, with certain limited exceptions, to exceed 0.30% of the total Fund assets in the program on an annual basis for those classes of shares that pay a service fee pursuant to a 12b-1 Plan, and 0.40% of total Fund assets in the program on an annual basis for those classes of shares that do not pay service fees pursuant to a 12b-1 Plan. In addition, CMD, Columbia WAM or their affiliates may make lump sum payments to selected financial intermediaries receiving investor servicing payments in reimbursement of printing costs for literature for participants, account maintenance fees or fees for establishment of the Funds on the financial intermediary's system or other similar services. As of the date of this SAI, CMD, Columbia WAM or their affiliates had agreed to make investor servicing payments to the following financial intermediaries or their affiliates:
ABR Retirement Plan Services, Inc. Investmart, Inc. ACS HR Solutions LLC JP Morgan Retirement Plan Services LLC Administrative Management Group Lincoln Financial Group American Century Investments Marquette Trust Company Ameriprise Financial Services, Inc. Matrix Settlement & Clearance Services AST Trust Company Mellon Financial Services Benefit Plan Administrators Mercer HR Services, LLC Bisys Retirement Services Merrill Lynch, Pierce, Fenner & Smith Incorporated Ceridian Retirement Plan Services Mid Atlantic Capital Corporation Charles Schwab & Co. National Deferred Compensation, Inc. Chase Bank of Texas, N.A. National Investor Services Corp. Citigroup Global Markets Inc. Nationwide Investment Services CitiStreet LLC Northern Trust Retirement Consulting, LLC City National Bank NYLife Distributors LLC CNA Trust Corporation PNC Advisors Compensation & Capital Administrative Services, Inc Princeton Retirement Group CompuSys Erisa Group of Companies RBC Dain Rauscher Inc. Crown Point Trust Company Stanton Trust Daily Access Concepts, Inc. Strong Funds Distributors, Inc. Digital Retirement Solutions Sungard Investment Products, Inc. Dreyfus Service Corporation The 401k Company Edgewood Services, Inc. T. Rowe Price Group, Inc. E*Trade Group, Inc. Unified Trust Company, N.A. ExpertPlan The Gem Group, L.P. Fidelity Investments Institutional Operations Co. The Principal Financial Group Fiserv Trust Company The Vanguard Group, Inc. GWFS Equities, Inc. Wachovia Securities, LLC Hartford Life Insurance Company Wells Fargo Investments, LLC Hewitt Associates LLC Wilmington Trust Corporation
CMD, Columbia WAM or their affiliates may enter into similar arrangements with other financial intermediaries from time to time. Therefore, the preceding list is subject to change at any time without notice. 66 OTHER PAYMENTS From time to time, CMD or Columbia WAM, from its own resources, may provide additional compensation to certain financial intermediaries that sell or arrange for the sale of shares of a Fund to the extent not prohibited by laws or the rules of any self-regulatory agency, such as the NASD. Such compensation provided by CMD may include financial assistance to financial intermediaries that enable CMD to participate in and/or present at financial intermediary-sponsored conferences or seminars, sales or training programs for invited registered representatives and other financial intermediary employees, financial intermediary entertainment, and other financial intermediary-sponsored events, and travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, retention and due diligence trips. CMD makes payments for entertainment events it deems appropriate, subject to CMD's internal guidelines and applicable law. These payments may vary upon the nature of the event. Your financial intermediary may charge you fees or commissions in addition to those disclosed in this Statement of Additional Information. You can ask your financial intermediary for information about any payments it receives from CMD, Columbia WAM and their affiliates and any services it provides, as well as fees and/or commissions it charges. In addition, depending on the financial arrangement in place at any particular time, a financial intermediary and its financial consultants also may have a financial incentive for recommending a particular Fund or share class over others. You should consult with your financial advisor and review carefully any disclosure by the financial intermediary as to compensation received by your financial advisor. 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 the public offering price next determined after CMD 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 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. For share purchases of Columbia Acorn Select, for accounts opened prior to August 5, 2005, no minimum investment applies to accounts participating in the Automatic Investment Plan. Further information and application forms are available from FSFs or from CMD. 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 CMD 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 Management 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. 67 CMD 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"). CMD 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 CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD. 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 CMS. 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 CMS. 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 CMD, 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 CMS, 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. 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 CMS for more information at 1-800-345-6611. PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. 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 shares of funds for which CMD serves as distributor held by the shareholder. CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation. STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement. 68 During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement. If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD 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, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will 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 CMS at 1-800-345-6611. NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). 1. Employees, brokers and various relationships that are allowed to buy at ----------------------------------------------------------------------- NAV. Class A shares of certain Funds may be sold at (NAV) to the following --- individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law. Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution. Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only. Banks, trust companies and thrift institutions, acting as fiduciaries. 2. Grandfathered investors. Any shareholder who owned shares of any fund of ----------------------- Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available. Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005. Galaxy Fund shareholders prior to December 1, 1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at net asset value and received Class A shares in exchange for those shares 69 during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased. (For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds. 3. Reinstatement. Subject to the fund policy on trading of fund shares, an ------------- investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment. 4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are ---------------- not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans. 5. Non-U.S. Investors. Certain pension, profit-sharing or other employee ------------------ benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge. 6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to --------------- shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party. 7. Rights of Accumulation (ROA). The value of eligible accounts, regardless ---------------------------- of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase. 8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing ----------------------- class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation: 1. Death. CDSCs may be waived on redemptions 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 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 CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit 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." 70 3. Disability. CDSCs may be waived on redemptions occurring 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 individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD. 6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by -------------------------- employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program that has signed an agreement with Columbia Funds or CMD. 7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F ------------------ shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes. 8. Return of Commission. CDSCs may be waived on shares sold by intermediaries -------------------- that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission. 9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions ------------------ from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors. 10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain ----------------------- pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code. 11. Medical Payments. CDSCs may be waived on shares redeemed for medical ---------------- payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks. 12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for ----------------------- shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party. 13. Charitable Giving Program. CDSCs may be waived on the sale of Class C ------------------------- shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 14. 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. 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 71 shares for up to 10 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 CMS, 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 CMD 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, CMS, and many banks. Additional documentation is required for sales by corporations, agents, fiduciaries, surviving joint owners, IRA holders and other legal entities. Call CMS 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 CMS 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. 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, CMS will not be liable for any payment made in accordance with the provisions of a SWP. 72 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 CMD (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 CMD (with certain exceptions). Initial exchanges into Columbia Acorn Fund, Columbia Acorn USA and Columbia Acorn Select 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 CMD describes its investment objective and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Consult CMS 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 CMD that has a redemption fee. By calling CMS, 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 CMS 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. CMS 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, CMS will require customary additional documentation. Prospectuses of the other funds are available from the CMD 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. Consult your FSF or CMS. 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. 73 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 CMS 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 of investors. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the 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. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. 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. 74 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: ATVD = P(l+T)n 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 ATVD = 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: ATVDR = P(l+T)n 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 ATVDR = 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. 75 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 a 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- or five- 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. Other measures of volatility and relative performance may be used as appropriate. All such measures will fluctuate and do not represent future results. 76 APPENDIX I DESCRIPTION OF BOND RATINGS (COLUMBIA THERMOSTAT FUND) 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, LP ("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. (5) a.3 Amendment No. 2 to Agreement and Declaration of Trust. (6) b. Bylaws, as amended effective September 28, 2004. (6) d.1 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. (2) d.2 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. (8) d.3 Expense Reimbursement Agreement dated September 25, 2002. (4) d.4 Amended and Restated Investment Advisory Agreement between Columbia Acorn Trust and Columbia Wanger Asset Management, L.P. dated September 27, 2005. e. Distribution Agreement between Columbia Acorn Trust and Columbia Management Distributors, Inc. dated August 22, 2005. f. None. g. Amended and Restated Master Custodian Agreement between Columbia Acorn Trust and State Street Bank and Trust Company dated September 19, 2005. 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 Management Services, Inc.], dated September 29, 2000. (3) 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 Management Services, Inc.], dated September 25, 2002. (4) h.3 Amendment No. 2 to Shareholders' Servicing and Transfer Agent Agreement between Columbia Acorn Trust and Columbia Funds Services, Inc. [now named Columbia Management Services, Inc.], dated February 1, 2004. (6) h.4 Amendment No. 3 to Shareholders' Servicing and Transfer Agent Agreement between Columbia Acorn Trust and Columbia Funds Services, Inc. [now named Columbia Management Services, Inc.], dated November 16, 2004. (7) h.5 Letter agreement between Columbia Acorn Trust and Columbia Management Group, Inc., on behalf of Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.], Columbia Funds Services, Inc., [now named Columbia Management Services, Inc.] Columbia Wanger Asset Management, L.P. and Columbia Management Associates, Inc., dated February 28, 2005 effective as of October 1, 2004. (7) h.6 Participation Agreement among Merrill Lynch Life Insurance Company, Columbia Acorn Trust and Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.] dated March 4, 2005. h.7 Participation Agreement among ML Life Insurance Company of New York, Columbia Acorn Trust and Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.] dated March 4, 2005. 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. (6) m.2 Amended and Restated Rule 12b-1 Plan Implementing Agreement dated September 25, 2002. (4) n. Amended and Restated Plan Pursuant to Rule 18f-3(d) dated August 1, 2004. (6) p.1 Code of Ethics of Columbia Wanger Asset Management, L.P., Columbia Acorn Trust and Wanger Advisors Trust, as amended January 1, 2006. p.2 Code of Ethics for Non-Interested Board Members, as amended June 6, 2006. p.3 Code of Ethics of Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.], the principal underwriter of the Funds, effective January 1, 2006. - ----------------- (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 (2) 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. (3) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 70 to the Registration Statement filed on May 1, 2001. (4) 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. (5) Previously filed. Incorporated by reference to exhibit d.5 filed in post-effective amendment No. 75 to the Registration Statement filed on April 30, 2003. (6) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 77 to the Registration Statement filed on March 1, 2005. (7) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective Amendment No. 78 to the Registration Statement filed on May 1, 2005. (8) Previously filed. Incorporated by reference to exhibit d.3 filed in the post-effective amendment No. 78 to the Registration Statement filed on May 1, 2005. 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 3 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 provide 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 Management Distributors, Inc. ("CMD"), a subsidiary of Columbia Management Advisors, LLC, is the Registrant's principal underwriter. CMD acts in such capacity for each series of Columbia Funds Series Trust, Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Columbia Funds Master Investment Trust, Nations Separate Account Trust, Liberty Variable Investment Trust, Stein Roe Variable Investment Trust and Wanger Advisors Trust. 4 (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 PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT Ahmed, Yaqub Vice President None Aldi, Andrew Vice President None Anderson, Judith Vice President None Ash, James Vice President None Banks, Keith Director None Ballou, Richard J. Senior Vice President None Bartlett, John Managing Director None Berretta, Frederick R. Director, President, Institutional None Distribution Bozek, James Senior Vice President None Brantley, Thomas M. Senior Vice President - Tax None Brown, Beth Senior Vice President None Claiborne, Doug Senior Vice President None Climer, Quentin Vice President None Conley, Brook Vice President None Davis, W. Keith Senior Vice President - Tax None DeFao, Michael Chief Legal Officer None Desilets, Marian Vice President Assistant Secretary Devaney, James Senior Vice President None Devlin, Audrey Assistant Vice President None Dolan, Kevin Vice President None Donovan, M. Patrick Chief Compliance Officer None Doyle, Matthew Vice President None 5 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT Emerson, Kim P. Senior Vice President None Feldman, David Managing Director None Feloney, Joseph Senior Vice President None Ferullo, Jeanne Vice President None Fisher, James F. Vice President None Ford, David Vice President None Froude, Donald Director and President, Intermediary None Distribution Gellman, Laura D. Conflicts of Interest Officer None Gentile, Russell Vice President None Goldberg, Matthew Senior Vice President None Gubala, Jeffrey Vice President None Guenard, Brian Vice President None Hall, Jennifer Assistant Vice President None Hoefler, Heidi A. Assistant Secretary None Hohmann, David Assistant Secretary None Iudice, Jr., Philip J. Treasurer and Chief Financial Officer None Kamin, Eric Assistant Vice President None Lebrun, Marie Assistant Treasurer None Lynch, Andrew R. Managing Director None Lynn, Jerry Vice President None Magasiner, Andrei Grischa Assistant Treasurer None Marcelonis, Sheila Vice President None Martin, William W. Operational Risk Officer None Miller, Anthony Vice President None 6 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT Miller, Greg M. Vice President None Moon, Leslie Assistant Vice President None Moberly, Ann R. Senior Vice President None Morse, Jonathan Vice President None Mroz, Gregory S. Senior Vice President - Tax None Nickodemus, Paul Vice President None Nigrosh, Diane J. Vice President None Noack, Robert W. Vice President None Owen, Stephanie Vice President None Penitsch, Marilyn Vice President None Piken, Keith Senior Vice President None Pryor, Elizabeth A. Secretary None Ratto, Gregory Vice President None Rawdon, Gary Assistant Vice President None Reed, Christopher B. Senior Vice President None Ross, Gary Senior Vice President None Sayler, Roger Director and President None Schortmann, Matthew Assistant Vice President None Sciascia, Steven A. Assistant Vice President None Scully-Power, Adam Vice President None Seller, Gregory Vice President None Shea, Terence Vice President None Sideropoulos, Lou Senior Vice President None Smith, Connie B. Assistant Secretary None Studer, Eric Senior Vice President None 7 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT Unckless, Amy L. Corporate Ombudsman None Waldron, Thomas Vice President None Walsh, Brian Vice President None Wess, Valerie Senior Vice President None Weidner, Donna M. Assistant Treasurer None Wheeler, Eben Assistant Vice President None Wilson, Christopher Senior Vice President None Winn, Keith 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. 8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this post-effective amendment pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on May 1, 2006. 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/ James A. Star Trustee ) - ---------------------- James A. Star ) ) /s/ Ralph Wanger Trustee ) May 1, 2006 - ---------------------- 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 accounting Bruce H. Lauer officer) ) ) INDEX OF EXHIBITS FILED WITH THIS AMENDMENT EXHIBIT NUMBER EXHIBIT d.4 Amended and Restated Investment Advisory Agreement between Columbia Acorn Trust and Columbia Wanger Asset Management, L.P. dated September 27, 2005. e. Distribution Agreement between Columbia Acorn Trust and Columbia Management Distributors, Inc. dated August 22, 2005. g. Amended and Restated Master Custodian Agreement between Columbia Acorn Trust and State Street Bank and Trust Company dated September 19, 2005. h.6 Participation Agreement among Merrill Lynch Life Insurance Company, Columbia Acorn Trust and Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.] dated March 4, 2005. h.7 Participation Agreement among ML Life Insurance Company of New York, Columbia Acorn Trust and Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.] dated March 4, 2005. i. Consent of Bell, Boyd & Lloyd LLC. j. Consent of PricewaterhouseCoopers LLP. p.1 Code of Ethics of Columbia Wanger Asset Management, L.P., Columbia Acorn Trust and Wanger Advisors Trust, as amended January 1, 2006. p.2 Code of Ethics for Non-Interested Board Members, as amended June 6, 2006. p.3 Code of Ethics of Columbia Funds Distributor, Inc. [now named Columbia Management Distributors, Inc.], the principal underwriter of the Funds, effective January 1, 2006. EX-99.D(4) 3 file003.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. The Board of Trustees of Columbia Acorn, including a majority of independent trustees, on behalf of 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) (i) 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 and will endeavor to preserve the autonomy of Columbia Acorn. Columbia WAM will remain a wholly-owned subsidiary of Columbia Management Group, Inc. ("CMG") (or its successor) as a Chicago-based management firm. 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. (ii) INVESTMENT OPERATIONS. Columbia WAM will maintain the investment philosophy and research that the Chicago-based management deems appropriate; its research activities will be separate and dedicated solely to Columbia WAM and it will maintain its own domestic and international trading activities. Columbia WAM will use its best efforts to maintain information systems that will provide timely and uninterrupted operating information and data consistent with all regulatory and compliance requirements. The Chicago-based management will have the responsibility and 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 while subject to the approval of the management of CMG. (iii) BROKERAGE. 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. (iv) COMPLIANCE. Columbia WAM acknowledges the importance that the Board and its compliance committee place on full legal and regulatory compliance by CMG, Columbia WAM, and all other Columbia Acorn service providers and their personnel (collectively, "Providers") and agrees to (i) fully cooperate with the Board, the compliance committee and the Chief Compliance Officer of Columbia Acorn with all inquiries by Columbia Acorn concerning such compliance by the Providers and (ii) proactively communicate with the Board, the compliance committee and the Chief Compliance Officer of Columbia Acorn concerning material compliance matters and any instance of legal or regulatory non-compliance by the Providers of which Columbia WAM is aware and that Columbia WAM deems to be material. Such cooperation and communication by Columbia WAM will be done after receipt of an inquiry or upon learning of any such legal or regulatory non-compliance. (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 2 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 3 (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 - ------ ----------- Up to $700 million 0.740% $700 million to $2 billion 0.690% $2 billion to $6 billion 0.640% $6 billion and over 0.630% COLUMBIA ACORN INTERNATIONAL ASSETS RATE OF FEE - ------ ----------- Up to $100 million 1.190% $100 million to $500 million 0.940% $500 million and over 0.740% COLUMBIA ACORN USA ASSETS RATE OF FEE - ------ ----------- Up to $200 million 0.940% $200 million to $500 million 0.890% $500 million and over 0.840% COLUMBIA ACORN SELECT ASSETS RATE OF FEE - ------ ----------- Up to $700 million 0.850% $700 million and over 0.800% COLUMBIA ACORN INTERNATIONAL SELECT 4 ALL ASSETS 0.940% COLUMBIA THERMOSTAT FUND ALL ASSETS 0.100% 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. The principal investment management focus and responsibilities of Columbia WAM's portfolio managers and analysts will be dedicated to Columbia Acorn and Wanger Advisors Trust. 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 September ___, 2005. Unless terminated as provided in Section 13, this agreement shall continue in effect as to a Fund until July 31, 2006 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. 5 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 CMG 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 70 West Madison Street, 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. 6 Dated as of September 27, 2005 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 7 EX-99.E 4 file004.txt DISTRIBUTION AGREEMENT EXECUTION COPY DISTRIBUTION AGREEMENT COLUMBIA ACORN FUNDS THIS AGREEMENT is made as of August 22, 2005, by and between each Massachusetts business trust (each Trust, hereinafter, the "Trust") listed on Schedule I on behalf of each series of each Trust listed on Schedule I (each, a "Fund" and collectively, the "Funds"), and COLUMBIA MANAGEMENT DISTRIBUTORS, INC., a Massachusetts corporation (the "Distributor"). Absent written notification to the contrary by either the Trust or the Distributor, each new investment portfolio established in the future shall automatically become a "Fund" for all purposes hereunder and shares of each new class established in the future shall automatically become "Shares" for all purposes hereunder as if set forth on Schedule I. WHEREAS, the Trust is registered with the Securities and Exchange Commission (the "SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Trust desires to retain the Distributor as the exclusive distributor of the units of beneficial interest in all classes of shares ("Shares") of the Funds, and the Distributor is willing to render such services; and WHEREAS, the Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. (the "NASD"). NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. SERVICES AS DISTRIBUTOR. 1.1. The Distributor will act as agent for the distribution of Shares in accordance with any instructions of the Trust's Board of Trustees and with the Trust's registration statement then in effect under the Securities Act of 1933, as amended (the "1933 Act"), and will transmit promptly any orders properly received by it for the purchase or redemption of Shares to the Trust or its transfer agent, or their designated agents. As used in this Agreement, the term "registration statement" shall mean any registration statement, specifically including, among other items, any then-current prospectus together with any related then-current statement of additional information, filed with the SEC with respect to Shares, and any amendments and supplements thereto which at any time shall have been filed. 1.2. The Distributor agrees to use appropriate efforts to solicit orders for the sale of Shares and will undertake such advertising and promotion, as it believes appropriate in connection with such solicitation. The Distributor agrees to offer and sell Shares at the applicable public offering price or net asset value next determined after an order is received. The Trust understands that the Distributor is and may in the future be the distributor of shares of other investment company portfolios including portfolios having investment objectives similar to those of the Funds. The Trust further understands that existing and future investors in the Funds may invest in shares of such other portfolios. The Trust agrees that the Distributor's duties to such portfolios shall not be deemed in conflict with its duties to the Trust under this paragraph 1.2. 1.3. The Distributor shall, at its own expense, finance such activities as it deems reasonable and which are primarily intended to result in the sale of Shares, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing and mailing of prospectuses to other than current shareholders, and the printing and mailing of sales literature. 1.4. The Trust shall be responsible for expenses relating to the execution of any and all documents and the furnishing of any and all information and otherwise taking, or causing to be taken, all actions that may be reasonably necessary in connection with the registration of Shares under the 1933 Act and the Trust under the 1940 Act and the qualification of Shares for sale under the so-called "blue sky" laws in such states as the Trust directs and in such states as the Distributor may recommend to the Trust which the Trust approves, and the Trust shall pay all fees and other expenses incurred in connection with such registration and qualification. The Trust shall be also responsible for the preparation, printing and distribution of prospectuses and statements of additional information to shareholders and the direct expenses of the issue of Shares. 1.5. The Distributor shall be responsible for preparing, reviewing and providing advice on all sales literature (e.g., advertisements, brochures and shareholder communications) with respect to each of the Funds, and shall file with the NASD or the appropriate regulators all such materials as are required to be filed under applicable laws and regulations in compliance with such laws and regulations. 1.6. In connection with all matters relating to this Agreement, the Trust and the Distributor agree to comply with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the 1933 Act, the 1934 Act, the 1940 Act, the regulations of the NASD and all other applicable federal and state laws, rules and regulations. The Distributor agrees to provide the Trust with such certifications, reports and other information as the Trust may reasonably request from time to time to assist it in complying with, and monitoring for compliance with, such laws, rules and regulations. The Distributor agrees to comply with the Trust's compliance policies and procedures as provided by the Trust from time to time. 1.7. Whenever in their judgment such action is warranted by unusual market, economic or political conditions, or by other circumstances of any kind, the Trust's officers may decline to accept any orders for, or make any sales of, Shares until such time as those officers deem it advisable to accept such orders and to make such sales. 1.8. The Trust shall furnish from time to time, for use in connection with the sale of Shares, such information with respect to the Funds and Shares as the Distributor may reasonably request and the Trust warrants that such information shall be true and correct. Without limited the foregoing, the Trust shall also furnish the Distributor upon request with: (a) audited annual and unaudited semi-annual statements of the Trust's books and accounts with 2 respect to each Fund, and (b) from time to time such additional information regarding the Funds' financial condition as the Distributor may reasonably request. 1.9. The Trust may from time to time adopt one or more distribution plans pursuant to Rule 12b-1 under the 1940 Act. As compensation for services rendered hereunder, the Distributor shall be entitled to receive from the Trust the payments set forth on Schedule II attached hereto, as the same may be amended from time to time by agreement of the parties. In addition, the Distributor shall be entitled to retain any front-end sales charge imposed upon the sale of Shares (and reallow a portion thereof) as specified in the Trust's registration statement and the Trust shall pay to the Distributor the proceeds from any contingent deferred sales charge imposed on the redemption of Shares as specified in the Trust's registration statement. Distributor, from time to time, may assign to any third party all or any portion of amounts payable to the Distributor under this Agreement. 1.10. The Distributor shall prepare reports for the Board of Trustees of the Trust regarding its activities under this Agreement as from time to time shall be reasonably requested by the Board, including reports regarding the use of Rule 12b-1 payments received by the Distributor, if any. 1.11. The Distributor is authorized to enter into written agreements with banks, broker/dealers and other financial institutions (collectively, "Intermediaries"), under such conditions and based on such form(s) of sales support agreements as may be approved by the Board of Trustees from time to time. The Distributor also may enter into such agreements if consistent with the conditions established by the Board of Trustees for such agreements and based on such additional forms of agreement as it deems appropriate, provided that the Distributor determines that the Trust's responsibility or liability to any person under, or on account of any acts or statements of any such selling agent under, any such sales support agreement does not exceed its responsibility or liability under the form(s) approved by the Board of Trustees, and provided further that the Distributor determines that the overall terms of any such sales support agreement are not materially less advantageous to the Trust than the overall terms of the form(s) approved by the Board of Trustees. In entering into and performing such agreements, the Distributor shall act as principal and not as agent for the Trust or any Fund. Upon the failure of any Intermediary to pay for any order for the purchase of Shares in accordance with the terms of the Fund's prospectus, the Fund shall have the right to cancel the sale of such Shares and thereupon the Distributor shall be responsible for any loss sustained as a result thereof. Upon the breach by an Intermediary of any provision of the agreement between the Distributor and the Intermediary, the Distributor will, at the Trust's expense, use reasonable efforts to preserve any rights the Trust may have to receive indemnification from the Intermediary under such agreement, including promptly notifying the Trust of such breach. 2. REPRESENTATIONS; INDEMNIFICATION. 2.1. The Trust represents to the Distributor that all registration statements with respect to Shares and shareholder reports with respect to Funds filed by the Trust with the SEC, have been prepared in conformity with the requirements of the 1933 Act, the 1934 Act and the 1940 Act, as applicable, and rules and regulations of the SEC thereunder. The Trust further represents and warrants to the Distributor that any registration statement, when such registration 3 statement becomes effective, and any shareholder report, when such report is filed, will contain all statements required to be stated therein in conformity with the 1933 Act, the 1934 Act and the 1940 Act, as applicable, and the rules and regulations of the SEC; that all statements of fact contained in any such registration statement or shareholder report will be true and correct when such registration statement becomes effective, or when such shareholder report is filed; and that no registration statement, when such registration statement becomes effective, and no shareholder report, when such shareholder report is filed, will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of Shares; provided, however, that the foregoing representations and warranties shall not apply to any untrue statement of material fact or omission made in any registration statement or shareholder report in reliance upon and in conformity with any information furnished to the Trust by the Distributor or any affiliate thereof and used in preparation thereof. The Trust authorizes the Distributor and authorized banks, broker/dealers and other financial institutions to use any prospectus or statement of additional information in the form furnished from time to time in connection with the sale of Shares and represented by the Trust as being the then-current form of prospectus or then-current form of statement of additional information. 2.2. The Trust agrees to indemnify, defend and hold the Distributor, its several officers and directors, and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers and directors, or any such controlling person, may incur under the 1933 Act or under common law or otherwise, arising out of or based upon (a) any breach by the Trust of any provision of this Agreement, or (b) any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or shareholder report or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in any registration statement or shareholder report or necessary to make any statement in such documents not misleading; provided, however, that the Trust's agreement to indemnify the Distributor, its officers and directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or shareholder report or in any financial or other statements in reliance upon and in conformity with any information furnished to the Trust by the Distributor or any affiliate thereof and used in the preparation thereof; and further provided that the Trust's agreement to indemnify the Distributor, its officers and directors, and any such controlling person shall not be deemed to cover any liability to the Trust or its shareholders to which the Distributor, is officers and directors, or any such controlling person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Distributor's, its officer's or director's, or any such controlling person's duties, or by reason of the Distributor's, its officer's or director's, or any such controlling person's reckless disregard of its obligations and duties under this Agreement. The Trust's agreement to indemnify the Distributor, its officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Trust's being notified of any action brought against the Distributor, its officers or directors, or any such controlling person, such notification to be given in writing and to be transmitted by personal 4 delivery, first class mail, overnight courier, facsimile or other electronic means to the address or facsimile number contained in paragraph 9 of this Agreement, or to such other addresses or facsimile numbers as the parties hereto may specify from time to time in writing and such notification to be sent to the Trust within a reasonable period of time after the summons or other first legal process shall have been served. The failure to so notify the Trust of any such action shall not relieve the Trust from any liability hereunder, which the Trust may have to the person against whom, such action is brought by reason of any such untrue or alleged untrue statement, or omission or alleged omission, except to the extent the Trust has been actually prejudiced by such delay. The Trust will be entitled to assume at its own expense the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Trust and approved by the Distributor, which approval shall not unreasonably be withheld. In the event the Trust elects to assume the defense of any such suit and retain counsel of good standing approved by the Distributor, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Trust does not elect to assume the defense of any such suit, or in case the Distributor reasonably does not approve of counsel chosen by the Trust, the Trust will reimburse the Distributor, its officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by the Distributor or them. The Trust's indemnification agreement contained in this paragraph 2.2 and the Trust's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Distributor, its officers or directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to the Distributor's benefit, to the benefit of its several officers and directors, and their respective estates, and to the benefit of the controlling persons and their successors. The Trust agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against the Trust or any of its officers or Trustees in connection with the issue and sale of any Shares. 2.3. The Distributor agrees to indemnify, defend and hold the Trust, its several officers and Trustees, and any person who controls the Trust within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the costs of investigation or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Trust, its officers or Trustees or any such controlling person, may incur under the 1933 Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Trust, its officers or Trustees, or such controlling person resulting from such claims or demands, shall arise out of or be based upon (a) any untrue, or alleged untrue, statement of a material fact contained in information furnished by the Distributor or any affiliate thereof to the Trust or its counsel and used in the Trust's registration statement or shareholder reports, or any omission, or alleged omission, to state a material fact in connection with such information furnished by the Distributor or any affiliate thereof to the Trust or its counsel required to be stated in such information or necessary to make such information not misleading, (b) any untrue statement of a material fact contained in any sales literature prepared by the Distributor, or any omission to state a material fact required to be stated therein or necessary to make such sales literature not misleading (except to the extent arising out of information furnished by the Trust to the Distributor for use therein), (c) any 5 willful misfeasance, bad faith or gross negligence in the performance of the Distributor's obligations and duties under the Agreement or by reason of its reckless disregard thereof, or (d) any breach by the Distributor of any provision of this Agreement. The Distributor's agreement to indemnify the Trust, its officers and Trustees, and any such controlling person, as aforesaid, is expressly conditioned upon the Distributor's being notified of any action brought against the Trust, its officers or Trustees, or any such controlling person, such notification to be given in writing and to be transmitted by personal delivery, first class mail, overnight courier, facsimile or other electronic means to the address or facsimile number contained in paragraph 9 of this Agreement, or to such other addresses or facsimile numbers as the parties hereto may specify from time to time in writing and such notification to be sent to the Distributor by the person against whom such action is brought, within a reasonable period of time after the summons or other first legal process shall have been served. The failure to so notify the Distributor of any such action shall not relieve the Distributor or any affiliate thereof from any liability hereunder, which the Distributor or any affiliate thereof may have to the Trust, its officers or Trustees, or to such controlling person by reason of any such untrue or alleged untrue statement, or omission or alleged omission, or other conduct covered by this indemnity agreement, except to the extent the Distributor has been actually prejudiced by such delay. The Distributor shall have the right to control the defense of such action, with counsel of good standing of its own choosing, approved by the Board of Trustees of the Trust, which approval shall not unreasonably be withheld, if such action is based solely upon such misstatement or omission, or alleged misstatement or omission, on the Distributor's part or any affiliate thereof. 2.4. The Trust agrees to advise the Distributor as soon as reasonably practicable of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement then in effect or of the initiation of any proceeding for that purpose. Thereafter, no Shares shall be offered by either the Distributor or the Trust under any of the provisions of this Agreement and no orders for the purchase or sale of Shares hereunder shall be accepted by the Trust if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the 1933 Act, or if and so long as a current prospectus, as required by Section 10(b) of the 1933 Act is not on file with the SEC; provided, however, that nothing contained in this paragraph 2.4 shall in any way restrict or have any application to or bearing upon the Trust's obligation to repurchase Shares from any shareholder in accordance with the provisions of the Trust's prospectus or Declaration of Trust. 3. CONFIDENTIALITY. The Trust and Distributor may receive from each other information, or access to information, about the customers or about consumers generally (collectively, "Customer Information") including, but not limited to, nonpublic personal information such as a customer's name, address, telephone number, account relationships, account balances and account histories. Each of the Trust and Distributor agrees on behalf of their respective employees that all information, including Customer Information, obtained pursuant to this Agreement shall be considered confidential information. Except as permitted by law or required by order of a court or governmental authority, or required by any self-regulatory organization, having jurisdiction over the parties, none of the parties shall disclose such confidential information to any other person or entity or use such confidential information other than to carry out the purposes of this 6 Agreement, including its use under applicable provisions of the SEC's Regulation S-P in the ordinary course of carrying out the purposes of this Agreement. 4. ANTI-MONEY LAUNDERING PROGRAM. The Distributor represents and warrants that it (a) has adopted an anti-money laundering compliance program ("AML Program") that satisfies the requirements of all applicable laws and regulations; and (b) will notify the Trust promptly if an inspection by the appropriate regulatory authorities of its AML Program identifies any material deficiency, and will promptly remedy any material deficiency of which it learns. 5. LIMITATIONS OF LIABILITY. Except as provided in paragraph 2.3, the Distributor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust or any Fund in connection with matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations and duties under this Agreement. 6. TERM. 6.1. This Agreement will become effective as of August 1, 2005 and, unless sooner terminated as provided herein, shall continue in effect until July 31, 2006. This Agreement shall thereafter continue from year to year, provided such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees, or (ii) a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by the majority of the Trust's Trustees who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval. 6.2. This Agreement is terminable with respect to a Fund, without penalty, on not less than sixty (60) days' written notice, by the Trust's Board of Trustees, by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Fund, or by the Distributor. This Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). Upon termination, the obligations of the parties under this Agreement shall cease except for unfulfilled obligations and liabilities arising prior to termination and the provisions of Sections 2, 3, 5, 6.2, 7, 8 and 9. 7. LIMITED RECOURSE A reference to each Trust and the Trustees of each Trust refer respectively to the Trust created by the Declaration of Trust and the Trustees as Trustees but not individually or personally. A copy of the document establishing each Trust is filed with the Secretary of the Commonwealth of Massachusetts. All parties hereto acknowledge and agree that any and all liabilities of the Trust arising, directly or indirectly, under this Agreement will be satisfied solely out of the assets of the Trust and that no Trustee, officer or shareholder shall be personally liable for any such liabilities. All persons dealing with any Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 7 8. MISCELLANEOUS. 8.1. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 8.2. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts as in effect as of the date hereof and the applicable provisions of the 1940 Act. To the extent that the applicable law of the Commonwealth of Massachusetts, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. 9. NOTICES. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to such address as may be designated for the receipt of such notice. Until further notice, it is agreed that the address of the Trust shall be 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606-5016, Attn: Bruce H. Lauer, Vice President, Treasurer and Secretary, and that of the Distributor shall be c/o Columbia Management Services, Inc., Attn: Dealer File Department, 245 Summer St., Fl 3, Boston, MA 02110, telefacsimile (617) 742-2989. 10. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 8 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. EACH TRUST DESIGNATED IN SCHEDULE I, on behalf of its respective Funds By: /s/ Charles P. McQuaid ___________________________________________ Name: Charles P. McQuaid Title: President of Columbia Acorn Funds COLUMBIA MANAGEMENT DISTRIBUTORS, INC. By: /s/ Donald E. Froude ___________________________________________ Name: Donald E. Froude Title: President, Intermediary Distribution 9 SCHEDULE I Columbia Acorn Fund Columbia Acorn International Select Fund Columbia Acorn International Fund Columbia Acorn Select Fund Columbia Acorn USA Fund Columbia Thermostat Fund 10 SCHEDULE II COMPENSATION FUND FEE AS A PERCENTAGE OF DAILY NET ASSETS CLASS A 25 BASIS POINTS CLASS B 85 BASIS POINTS CLASS C 100 BASIS POINTS Approved: July 20, 2005 11 EX-99.G 5 file005.txt CUSTODIAN AGREEMENT AMENDED AND RESTATED MASTER CUSTODIAN AGREEMENT This Amended and Restated Master Custodian Agreement is made as of September 19, 2005 between each registered investment company identified on Appendix A hereto (each such registered investment company and each registered investment company made subject to this Agreement in accordance with Section 18 below shall hereinafter be referred to as the "FUND"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the "CUSTODIAN"). WITNESSETH: WHEREAS, each Fund is registered under the Investment Company Act of 1940, as amended, (the "1940 ACT"); WHEREAS, the Funds have appointed the Custodian as custodian of its assets by a Master Custodian Agreement dated as of July 1, 1995, as amended (the "ORIGINAL CUSTODY AGREEMENT"), and retained the Custodian to serve as custodian of its assets, for itself, and, to the extent a Fund is authorized to issue shares of common stock or shares of beneficial interest in separate series, on behalf of each of its series set forth on Appendix A hereto (such series together with all other series subsequently established by a Fund and made subject to this Agreement in accordance with Section 19 below, shall hereinafter be referred to as the "PORTFOLIO(S)"; for each Fund not authorized to issue separate series of shares, all references hereinafter to one or more "Portfolio(s)" shall be deemed to refer to such Fund); and WHEREAS, the Funds and Custodian desire to amend and restate the Original Custody Agreement pursuant to the terms and conditions herein. NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT Each Fund hereby employs the Custodian as the custodian of certain assets of such Fund, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("DOMESTIC SECURITIES") and securities it desires to be held outside the United States ("FOREIGN SECURITIES"). The Fund, on behalf of the Portfolio(s), has delivered or will deliver to the Custodian all securities and cash of the Portfolios (other than any securities or cash of the Portfolios held by a futures commission merchant or commodity clearing organization pursuant to Rule 17f-6 under the 1940 Act), and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund representing interests in the Portfolios ("SHARES") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to the Custodian. With respect to uncertificated shares (the "UNDERLYING SHARES") of registered investment companies (hereinafter sometimes referred to as the "UNDERLYING PORTFOLIOS"), the holding of confirmation statements that identify the shares as being recorded in the Custodian's name on behalf of the Portfolio will be deemed custody for purposes hereof. Upon receipt of "PROPER INSTRUCTIONS" (as such term is defined in Section 7 hereof), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees, Board of Directors, Board of Managers or other governing board, as applicable, of a Fund (the "BOARD") on behalf of the applicable Portfolio(s). The Custodian may employ as sub-custodian for a Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4. The Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN IN THE UNITED STATES SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all domestic securities owned by such Portfolio other than (a) securities which are maintained pursuant to Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. SECURITIES SYSTEM") and (b) the Underlying Shares owned by the Fund which are maintained pursuant to Section 2.13 in an account with State Street Bank and Trust Company or such other entity as may from time to time act as a transfer agent for the Underlying Portfolios and with respect to which the Custodian is provided with Proper Instructions (the "UNDERLYING TRANSFER AGENT"). SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian or in a U.S. Securities System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio; 2 3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.8 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.7 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible under this Agreement for the delivery of securities owned by the Portfolio prior to the receipt of such collateral; 11) For delivery in connection with any loans of securities made by the Fund to a third party lending agent, or the lending agent's custodian, in accordance with Proper Instructions (which may not provide for the receipt by the Custodian of 3 collateral therefor) agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio; 12) For delivery as security in connection with any borrowing by the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of the Portfolio, but only against receipt of amounts borrowed; 13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio of the Fund; 14) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission ("CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Portfolio of the Fund; 15) Upon the sale or other delivery of such investments (including, without limitation, to one or more custodians (each, a "REPO CUSTODIAN") appointed by the Fund on behalf of a Portfolio and communicated to the Custodian by Proper Instructions, including Schedule D (as may be amended from time to time) attached to this Agreement, duly executed by two authorized officers of the Fund, for the purpose of engaging in repurchase agreement transactions), and prior to receipt of payment therefor, as set forth in written Proper Instructions (such delivery in advance of payment, along with payment in advance of delivery made in accordance with Section 2.6(8), as applicable, shall each be referred to herein as a "FREE TRADE"), provided that such Proper Instructions shall set forth (a) the securities of the Portfolio to be delivered and (b) the person(s) to whom delivery of such securities shall be made; 16) Upon receipt of instructions from the Fund or the transfer agent for the Fund (the "TRANSFER AGENT") for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund related to the Portfolio (the "PROSPECTUS"), in satisfaction of requests by holders of Shares for repurchase or redemption; 17) For delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; and 4 18) In the case of a sale processed through the Underlying Transfer Agent of Underlying Shares, in accordance with Section 2.13 hereof; 19) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio specifying the securities of the Portfolio to be delivered and naming the person or persons to whom delivery of such securities shall be made. SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment advisor as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in "street name" or other good delivery form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers. SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held 5 hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled. SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.8 hereof; (c) in the case of a purchase of Underlying Shares, in accordance with the conditions set forth in Section 2.13; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the Custodian, or another bank, or a broker-dealer which is a member of NASD, against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities; or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein; 2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued as set forth in Section 6 hereof; 4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends on Shares declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 6 7) For payment as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; and 8) For delivery to a Repo Custodian for the purpose of engaging in repurchase agreement transactions, which delivery may be made without contemporaneous receipt by the Custodian of assets in exchange therefor, and upon which delivery to such Repo Custodian in accordance with Proper Instructions from the Fund on behalf of a Portfolio, the Custodian shall have no further responsibility or obligation to the Fund as a custodian for the Portfolio with respect to the securities so delivered (each such delivery, a "FREE TRADE"), provided that, in preparing reports of monies received or paid out of the Portfolio or of assets comprising the Portfolio, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and 9) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the Portfolio specifying the amount of such payment and naming the person or persons to whom such payment is to be made. SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. The Underlying Transfer Agent shall not be deemed an agent or subcustodian of the Custodian for purposes of this Section 2.7 or any other provision of this Agreement. SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by a Portfolio in a U.S. Securities System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time. SECTION 2.9 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating U.S. cash, U.S. Government securities, or other U.S. securities in connection with swaps arrangements in connection with transactions by the Portfolio, options purchased, sold or written 7 by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio. SECTION 2.10 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities. SECTION 2.11 PROXIES. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities. SECTION 2.12 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Portfolio all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If the Portfolio desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Portfolio shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. SECTION 2.13 DEPOSIT OF FUND ASSETS WITH THE UNDERLYING TRANSFER AGENT. Underlying Shares shall be deposited and/or maintained in an account or accounts maintained with the Underlying Transfer Agent. The Underlying Transfer Agent shall be deemed to be acting as if it is a "securities depository" for purposes of Rule 17f-4 under the 1940 Act. The Fund hereby directs the Custodian to deposit and/or maintain such securities with the Underlying Transfer Agent, subject to the following provisions: 1) The Custodian shall keep Underlying Shares owned by a Portfolio with the Underlying Transfer Agent provided that such securities are maintained in an account or accounts on the books and records of the Underlying Transfer Agent in the name of the Custodian as custodian for the Portfolio. 8 2) The records of the Custodian with respect to Underlying Shares which are maintained with the Underlying Transfer Agent shall identify by book-entry those Underlying Shares belonging to a Portfolio; 3) The Custodian shall pay for Underlying Shares purchased for the account of a Portfolio upon (i) receipt of advice from the Portfolio's investment manager that such Underlying Shares have been purchased and will be transferred to the account of the Custodian, on behalf of the Portfolio, on the books and records of the Underlying Transfer Agent, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Portfolio. The Custodian shall receive confirmation from the Underlying Transfer Agent of the purchase of such securities and the transfer of such securities to the Custodian's account with the Underlying Transfer Agent only after such payment is made. The Custodian shall transfer Underlying Shares redeemed for the account of a Portfolio (i) upon receipt of an advice from the Portfolio's investment manager that such securities have been redeemed and that payment for such securities will be transferred to the Custodian and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Portfolio. The Custodian will receive confirmation from the Underlying Transfer Agent of the redemption of such securities and payment therefor only after such securities are redeemed. Copies of all advices from the Portfolio's investment manager of purchases and sales of Underlying Shares for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by the Custodian, and be provided to the investment manager at its request; 4) The Custodian shall be not be liable to the Fund for any loss or damage to the Fund resulting from maintenance of Underlying Shares with Underlying Transfer Agent except for losses resulting directly from the negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees. SECTION 3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7 SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings: "COUNTRY RISK" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country. "ELIGIBLE FOREIGN CUSTODIAN" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth 9 in Rule 17f-5 or by other appropriate action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository. "ELIGIBLE SECURITIES DEPOSITORY" has the meaning set forth in section (b)(1) of Rule 17f-7. "FOREIGN ASSETS" means any of the Portfolios' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios' transactions in such investments. "FOREIGN CUSTODY MANAGER" has the meaning set forth in section (a)(3) of Rule 17f-5. "RULE 17F-5" means Rule 17f-5 promulgated under the 1940 Act. "RULE 17F-7" means Rule 17f-7 promulgated under the 1940 Act. SECTION 3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. 3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios. 3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof. Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund, on behalf of the Portfolios, of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board on behalf of the Portfolios responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Agreement. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of the Portfolios to the Custodian as Foreign 10 Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Portfolios with respect to that country. The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn. 3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES: (a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1). (b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2). (c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder. 3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board, or at the Board's delegation, a Fund's investment advisor, shall be deemed to have considered and determined to accept, on behalf of the Fund, such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios. 11 3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 3.2 after the occurrence of the material change. 3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise. 3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios. 3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Portfolios shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Portfolios with respect to designated countries. SECTION 3.3 ELIGIBLE SECURITIES DEPOSITORIES. 3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment advisor) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7. 3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1. 12 SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD OUTSIDE THE UNITED STATES SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings: "FOREIGN SECURITIES SYSTEM" means an Eligible Securities Depository listed on Schedule B hereto. "FOREIGN SUB-CUSTODIAN" means a foreign banking institution serving as an Eligible Foreign Custodian. SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Portfolios the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country. SECTION 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. 4.4.1. DELIVERY OF FOREIGN SECURITIES. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Portfolio in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System; (ii) in connection with any repurchase agreement related to foreign securities; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios; 13 (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) for delivery as security in connection with any borrowing by the Portfolios requiring a pledge of assets by the Portfolios; (x) for delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; (xi) in connection with the lending of foreign securities; and (xii) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made. 4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio in the following cases only: (i) upon the purchase of foreign securities for the Portfolio, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving 14 later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; (ii) in connection with the conversion, exchange or surrender of foreign securities of the Portfolio; (iii) for the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v) for delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; (vi) for payment of part or all of the dividends received in respect of securities sold short; (vii) in connection with the borrowing or lending of foreign securities; and (viii) For delivery to Repo Custodian, which delivery may be made without contemporaneous receipt by the Custodian of assets in exchange therefor, and upon which delivery to such Repo Custodian in accordance with Proper Instructions from the Fund on behalf of a Portfolio, the Custodian shall have no further responsibility or obligation to the Fund as a custodian for the Fund on behalf of a Portfolio with respect to the securities so delivered (each such delivery, a "FREE TRADE"), provided that, in preparing reports of monies received or paid out of the Portfolio or of assets comprising the Portfolio, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and (ix) for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made. 4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent 15 for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer. The Custodian shall provide to the Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder. SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts. SECTION 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. 16 SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Portfolios at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim. SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund with respect to the Portfolios or the Custodian as custodian of the Portfolios by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. SECTION 4.12. LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care. 17 SECTION 5. LOAN SERVICING PROVISIONS SECTION 5.1 GENERAL. The following provisions shall apply with respect to investments, property or assets in the nature of loans, or interests or participations in loans, including without limitation interests in syndicated bank loans and bank loan participations, whether in the U.S. or outside the U.S. (collectively, "LOANS") entered into by the Fund on behalf of one or more of its Portfolios (referred to in this Section 5 as the "FUND"). SECTION 5.2 SAFEKEEPING. Instruments, certificates, agreements and/or other documents which the Custodian may receive with respect to Loans, if any (collectively "FINANCING DOCUMENTS"), from time to time, shall be held by the Custodian at its offices in Boston, Massachusetts. SECTION 5.3 DUTIES OF THE CUSTODIAN. The Custodian shall accept such Financing Documents, if any, with respect to Loans as may be delivered to it from time to time by the Fund. The Custodian shall be under no obligation to examine the contents or determine the sufficiency of any such Financing Documents or to provide any certification with respect thereto, whether received by the Custodian as original documents, photocopies, by facsimile or otherwise. Without limiting the foregoing, the Custodian is under no duty to examine any such Financing Documents to determine whether necessary steps have been taken or requirements met with respect to the assignment or transfer of the related Loan or applicable interest or participation in such Loan. The Custodian shall be entitled to assume the genuineness, sufficiency and completeness of any Financing Documents received, and the genuineness and due authority of any signature appearing on such documents. Notwithstanding any term of this Agreement to the contrary, with respect to any Loans, (i) the Custodian shall be under no obligation to determine, and shall have no liability for, the sufficiency of, or to require delivery of, any instrument, document or agreement constituting, evidencing or representing such Loan, other than to receive such Financing Documents, if any, as may be delivered or caused to be delivered to it by the Fund (or its investment manager acting on its behalf), (ii) without limiting the generality of the foregoing, delivery of any such Loan (including without limitation, for purposes of Section 2.6 above) may be made to the Custodian by, and may be represented solely by, delivery to the Custodian of a facsimile or photocopy of an assignment agreement (an "ASSIGNMENT Agreement") or a confirmation or certification from the Fund (or the investment manager) to the effect that it has acquired such Loan and/or has received or will receive, and will deliver to the Custodian, appropriate Financing Documents constituting, evidencing or representing such Loan (such confirmation or certification, together with any Assignment Agreement, collectively, an "ASSIGNMENT AGREEMENT OR CONFIRMATION"), in any case without delivery of any promissory note, participation certificate or similar instrument (collectively, an "INSTRUMENT"), (iii) if an original Instrument shall be or shall become available with respect to any such Loan, it shall be the sole responsibility of the Fund (or the investment manager acting on its behalf) to make or cause delivery thereof to the Custodian, and the Custodian shall be under no obligation at any time or times to determine whether any such original Instrument has been issued or made available with respect to such Loan, and shall not be under any obligation to compel compliance by the Fund to make or cause delivery of such Instrument to the Custodian, and (iv) any reference to Financing Documents appearing in this Section 5 shall be deemed to include, without limitation, any such Instrument and/or Assignment Agreement or Confirmation. 18 If payments with respect to a Loan ("LOAN PAYMENT") are not received by the Custodian on the date on which they are due, as reflected in the Payment Schedule (as such term is defined in Section 5.4 below) of the Loan ("PAYMENT DATE"), or in the case of interest payments, not received either on a scheduled interest payable date, as reported to the Custodian by the Fund (or the investment manager acting on its behalf) for the Loan (the "INTEREST PAYABLE DATE"), or in the amount of their accrued interest payable, the Custodian shall promptly, but in no event later than one business day after the Payment Date or the Interest Payable Date, give telephonic notice to the party obligated under the Financing Documents to make such Loan Payment (the "OBLIGOR") of its failure to make timely payment, and (2) if such payment is not received within three business days of its due date, shall notify the Fund (or the investment manager on its behalf) of such Obligor's failure to make the Loan Payment. In the event the Custodian should receive a past due interest or other Loan Payment, the Custodian shall notify the Fund of such receipt. The Custodian shall have no responsibility with respect to the collection of Loan Payments which are past due, other than the duty to notify the Obligor and the Fund (or the investment manager acting on its behalf) as provided herein. The Custodian shall have no responsibilities or duties whatsoever under this Agreement, with respect to Loans or the Financing Documents, except for such responsibilities as are expressly set forth herein. Without limiting the generality of the foregoing, the Custodian shall have no obligation to preserve any rights against prior parties or to exercise any right or perform any obligation in connection with the Loans or any Financing Documents (including, without limitation, no obligation to take any action in respect of or upon receipt of any consent solicitation, notice of default or similar notice received from any bank agent or Obligor, except that the Custodian shall undertake reasonable efforts to forward any such notice to the Fund or the investment manager acting on its behalf). In case any question arises as to its duties hereunder, the Custodian may request instructions from the Fund and shall be entitled at all times to refrain from taking any action unless it has received Proper Instructions from the Fund or the investment manager and the Custodian shall in all events have no liability, risk or cost for any action taken, with respect to a Loan, pursuant to and in compliance with the Proper Instructions of such parties. The Custodian shall be only responsible and accountable for Loan Payments actually received by it and identified as for the account of the Fund; any and all credits and payments credited to the Fund, with respect to Loans, shall be conditional upon clearance and actual receipt by the Custodian of final payment thereon. The Custodian shall promptly, upon the Fund's request, release to the Fund's investment manager or to any party as the Fund or the Fund's investment manager may specify, any Financing Documents being held on behalf of the Fund. Without limiting the foregoing, the Custodian shall not be deemed to have or be charged with knowledge of the sale of any Loan, unless and except to the extent it shall have received written notice and instruction from the Fund (or the investment manager acting on its behalf) with respect thereto, and except to the extent it shall have received the sale proceeds thereof. In no event shall the Custodian be under any obligation or liability to make any advance of its own funds with respect to any Loan. 19 SECTION 5.4 RESPONSIBILITY OF THE FUND. With respect to each Loan held by the Custodian hereunder in accordance with the provisions hereof, the Fund shall (a) cause the Financing Documents evidencing such Loan to be delivered to the Custodian; (b) include with such Financing Documents an amortization schedule of payments (the "PAYMENT SCHEDULE") identifying the amount and due dates of scheduled principal payments, the Interest Payable Date(s) and related payment amount information, and such other information with respect to the related Loan and Financing Documents as the Custodian reasonably may require in order to perform its services hereunder (collectively, "LOAN INFORMATION"), in such form and format as the Custodian reasonably may require; (c) take, or cause the investment manager to take, all actions necessary to acquire good title to such Loan (or the participation in such Loan, as the case may be), as and to the extent intended to be acquired; and (d) cause the Custodian to be named as its nominee for payment purposes under the Financing Documents or otherwise provide for the direct payment of the Payments to the Custodian. The Custodian shall be entitled to rely upon the Loan Information provided to it by the Fund (or the investment manager acting on its behalf) without any obligation on the part of the Custodian independently to verify, investigate, recalculate, update or otherwise confirm the accuracy or completeness thereof; and the Custodian shall have no liability for any delay or failure on the part of the Fund in providing necessary Loan Information to the Custodian, or for any inaccuracy therein or incompleteness thereof. With respect to each such Loan, the Custodian shall be entitled to rely on any information and notices it may receive from time to time from the related bank agent, Obligor or similar party with respect to the related Loan, and shall be entitled to update its records on the basis of such information or notices received, without any obligation on its part independently to verify, investigate or recalculate such information. SECTION 5.5 INSTRUCTIONS; AUTHORITY TO ACT. The certificate of the Secretary or an Assistant Secretary of the Fund, identifying certain individuals to be officers of the Fund or employees of the Fund's investment manager authorized to sign any such instructions, may be received and accepted as conclusive evidence of the incumbency and authority of such to act and may be considered by the Custodian to be in full force and effect until it receives written notice to the contrary from the Secretary or Assistant Secretary of the Fund's Board. Notwithstanding any other provision of this Agreement, the Custodian shall have no responsibility to ensure that any investment by the Fund with respect to Loans has been authorized. SECTION 5.6 ATTACHMENT. In case any portion of the Loans or the Financing Documents shall be attached or levied upon pursuant to an order of court, or the delivery or disbursement thereof shall be stayed or enjoined by an order of court, or any other order, judgment or decree shall be made or entered by any court affecting the property of the Fund or any act of the Custodian relating thereto, the Custodian is hereby expressly authorized in its sole discretion to obey and comply with all orders, judgments or decrees so entered or issued, without the necessity of inquire whether such court had jurisdiction, and, in case the Custodian obeys or complies with any such order, judgment or decree, it shall not be liable to anyone by reason of such compliance. SECTION 6. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES The Custodian shall receive from the distributor for the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for Shares 20 thereof issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio. From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. SECTION 7. PROPER INSTRUCTIONS Proper Instructions, which may also be standing instructions, as used throughout this Agreement, shall mean instructions received by the Custodian from any person duly authorized by the Fund or its investment adviser. Such instructions may be in writing signed by the authorized person or persons or may be in a communication utilizing access codes or a tested communication effected between electro-mechanical or electronic devices, or may be by such other means and utilizing such intermediary systems and utilities as may be agreed to from time to time by the Custodian and the person or entity giving such instructions, provided that the Fund has followed any security procedures agreed to from time to time by the Fund and the Custodian, including, but not limited to, the security procedures selected by the Fund in the Funds Transfer Addendum to this Agreement. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any multi-party agreement which requires a segregated asset account in accordance with Section 2.9 of this Agreement. The Fund or the Fund's investment manager shall cause its duly authorized officer to certify to the Custodian in writing the names and specimen signatures of persons authorized to give Proper Instructions. The Custodian shall be entitled to rely upon the authority of such persons until it receives notice from the Fund to the contrary. SECTION 8. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY The Custodian may in its discretion, without express authority from the Fund on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio; 2) surrender securities in temporary form for securities in definitive form; 21 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board. SECTION 9. EVIDENCE OF AUTHORITY The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of the Fund ("CERTIFIED RESOLUTION") as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. SECTION 10. RECORDS (a) The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. (b) For a period of seven (7) years following termination of this Agreement or, if earlier, until the delivery to the Fund or its agent (which includes a Successor Custodian) of Portfolio Information (as defined below) from the preceding five (5) years in a reasonably searchable paper or electronic format to be agreed upon by the parties acting in good faith, the Custodian shall maintain and, upon request of the Fund and subject to the payment of compensation to the Custodian as provided below, make available to the Fund, its representatives or agents, such Portfolio Information as may reasonably be required in order for the Fund or its agents (but not the Custodian) to determine whether the Fund may be entitled to participate in certain class action securities litigation or other legal proceedings. As used in this subsection (b), the term "PORTFOLIO INFORMATION" shall mean a Portfolio's portfolio holdings information that is maintained by the Custodian pursuant to Section 10(a). The Custodian shall be entitled to reasonable compensation for any services provided and any additional expenses incurred under this Section 10(b). 22 SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT The Custodian shall take all reasonable action, as the Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof. SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall provide the Fund, on behalf of each of the Portfolios at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System (either, a "SECURITIES SYSTEM"), relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. SECTION 13. COMPENSATION OF CUSTODIAN The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon in writing from time to time between the Fund on behalf of each applicable Portfolio and the Custodian. SECTION 14. RESPONSIBILITY OF CUSTODIAN So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Except to the extent arising from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a Sub-Custodian, however, the Custodian shall be without liability to the Fund and the Portfolios for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization, expropriation, currency restrictions, or acts of war, revolution, riots or terrorism. 23 Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a sub-custodian or agent, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by; (i) events or circumstances beyond the reasonable control of the Custodian or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by the Fund or its duly-authorized investment manager or investment advisor in their instructions to the Custodian provided such instructions have been in accordance with this Agreement; (iii) the insolvency of or acts or omissions by a Securities System; (iv) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian's sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (v) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any consequential losses arising out of such delay or failure to transfer such securities including non-receipt of bonus, dividends and rights and other accretions or benefits; (vi) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (vii) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement. If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement. In no event shall the Custodian be liable for indirect, special or consequential damages. 24 SECTION 15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT This Agreement shall become effective as of its execution and shall continue for a term of one (1) year, subject to up to two (2) automatic one (1) year renewals (collectively, the "INITIAL TERM"), unless either party gives prior written notice to the other of its intent not to renew; provided, however, that either party may terminate this Agreement without penalty upon sixty (60) days prior written notice for cause. This Agreement may be amended at any time by mutual agreement of the parties hereto and after the Initial Term, this Agreement shall continue in full force and effect until terminated by either party by delivering written notice the other party in accordance with Section 22, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's Declaration of Trust, Articles of Incorporation and By-laws, Partnership or Limited Liability Company Agreement or other governing documents, as applicable, ("GOVERNING DOCUMENTS") and further provided, that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement, the Fund on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its reasonable costs, expenses and disbursements. SECTION 16. SUCCESSOR CUSTODIAN If a successor custodian for one or more Portfolios shall be appointed by the Board, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a Certified Resolution, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such resolution. In the event that no written order designating a successor custodian or Certified Resolution shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the 25 securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the Certified Resolution to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect. SECTION 17. INTERPRETIVE AND ADDITIONAL PROVISIONS In connection with the operation of this Agreement, the Custodian and the Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund's Governing Documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. SECTION 18. ADDITIONAL FUNDS In the event that any registered investment company in addition to those listed on Appendix A hereto desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such registered investment company shall become a Fund hereunder and be bound by all terms and conditions and provisions of this Agreement. SECTION 19. ADDITIONAL PORTFOLIOS In the event that any Fund establishes one or more series of Shares in addition to those listed on the Appendix attached to this Agreement, with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing and transmit to the Custodian a revised Appendix A, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. SECTION 20. MASSACHUSETTS LAW TO APPLY This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 26 SECTION 21. PRIOR AGREEMENTS This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between the Fund on behalf of each of the Portfolios and the Custodian relating to the custody of the Fund's assets. SECTION 22. NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time. To the Fund: Columbia Management Advisors, Inc. 245 Summer Street, 3rd Floor Boston, Massachusetts 02110 Attention: Michael Clarke Telephone: (617) 585-4130 Facsimile: (617) 585-4065 To the Custodian: STATE STREET BANK AND TRUST COMPANY Two Avenue de Lafayette, LCC/4S Boston, MA 02111 Attention: Edward J. McKenzie, Vice President Telephone: (617) 662-4100 Facsimile: (617) 662-4313 Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting. SECTION 23. REPRODUCTION OF DOCUMENTS This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 27 SECTION 24. THE PARTIES All references herein to the "Fund" are to each of the management investment companies listed on Appendix A hereto, and each management investment company made subject to this Agreement in accordance with Section 18 above, individually, as if this Agreement were between such individual Fund and the Custodian. In the case of a series corporation, trust or other entity, all references herein to the "Portfolio" are to the individual series or portfolio of such corporation, trust or other entity, or to such corporation, trust or other entity on behalf of the individual series or portfolio, as appropriate, made subject to this Agreement in accordance with Section 19 above. Any reference in this Agreement to "the parties" shall mean the Custodian and such other individual Fund as to which the matter pertains. On behalf of each Fund that is organized as a Massachusetts business trust, notice is hereby given that a copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts, and that this Agreement is executed by an officer of the Fund, as an officer and not individually, on behalf of the trustees of the Fund, as trustees and not individually, and that the obligations of this Agreement with respect to the Fund shall be binding upon the assets and properties of the Fund only and shall not be binding upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. SECTION 25. REPRESENTATIONS AND WARRANTIES OF EACH FUND Each Fund hereby represents and warrants that: (a) it is duly incorporated, formed or organized and is validly existing in good standing in its jurisdiction of incorporation, formation or organization; (b) it has the requisite power and authority under applicable law and its Governing Documents to enter into and perform this Agreement; (c) all requisite proceedings have been taken to authorize it to enter into and perform this Agreement; (d) this Agreement constitutes its legal, valid, binding and enforceable agreement; (e) its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it, and (f) it is an investment company registered under the 1940 Act, as amended and will continue to be a registered investment company under the 1940 Act for the term of this Agreement. SECTION 26. REMOTE ACCESS SERVICES ADDENDUM The Custodian and the Fund agree to be bound by the terms of the Remote Access Services Addendum attached hereto. SECTION 27. COUNTERPARTS This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when executed and delivered, shall constitute an original, and all such counterparts together shall constitute one and the same instrument. 28 SECTION 28. CONFIDENTIALITY The parties hereto agree that each shall treat confidentially all information provided by each party to the other party regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior written consent of the party providing the information. In addition, during the term of this Agreement, the Custodian will maintain policies reasonably designed to prohibit the Custodian and its employees from engaging in securities transactions based on knowledge of the Fund's portfolio holdings. The foregoing shall not be applicable to any information that is (i) publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, or that is independently derived by any party hereto without the use of any information provided by the other party hereto in connection with this Agreement, (ii) aggregated, without reference to such Fund, in whole or in part, with other client information for the Custodian's own marketing, reporting or other purposes, or (iii) required in any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or by operation of law or regulation. SECTION 29. PROVISIONS SURVIVING TERMINATION The provisions of Sections 4.11, 4.12, 10, 14, 15, 16, 20, 26 and 28 of this Agreement shall survive termination of this Agreement for any reason. SECTION 30. SHAREHOLDER COMMUNICATIONS ELECTION SEC Rule 14b-2 of Regulation 14A under the Exchange Act requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If the Fund tells the Custodian "no", the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For the Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below. YES [ ] The Custodian is authorized to release the Fund's name, address, and share positions. 29 NO [X] The Custodian is not authorized to release the Fund's name, address, and share positions. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 30 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the date first written above. EACH OF THE ENTITIES SET FORTH ON FUND SIGNATURE ATTESTED TO BY: THE APPENDIX A ATTACHED HERETO By: /s/ Bruce H. Lauer By: /s/ Linda R. Wiszowaty ------------------------------- ------------------------------- Name: Bruce H. Lauer Name: Linda R. Wiszowaty ------------------------------- ------------------------------- Title: Treasurer Title: Notary ------------------------------- ------------------------------- STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY: By: /s/ Joseph L. Hooley By: /s/ Veronica Greenbaum ------------------------------- ------------------------------- Name: Joseph L. Hooley Name: Veronica Greenbaum ------------------------------- ------------------------------- Title: Executive Vice President Title: Vice President ------------------------------- ------------------------------- 31 APPENDIX A COLUMBIA ACORN TRUST Columbia Acorn Fund Columbia Acorn International Fund Columbia Acorn International Select Fund Columbia Acorn Select Fund Columbia Acorn USA Fund Columbia Thermostat Fund SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Argentina Citibank, N.A. Australia Westpac Banking Corporation Citibank Pty. Limited Austria Erste Bank der Osterreichischen Sparkassen AG Bahrain HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Bangladesh Standard Chartered Bank Belgium BNP Paribas Securities Services, S.A. Benin via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Bermuda The Bank of Bermuda Limited Botswana Barclays Bank of Botswana Limited Brazil Citibank, N.A. Bulgaria ING Bank N.V. Burkina Faso via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Canada State Street Trust Company Canada Cayman Islands Scotiabank & Trust (Cayman) Limited Chile BankBoston, N.A. People's Republic of China The Hongkong and Shanghai Banking Corporation Limited, Shanghai and Shenzhen branches Colombia Cititrust Colombia S.A. Sociedad Fiduciaria Costa Rica Banco BCT S.A. Croatia Privredna Banka Zagreb d.d Cyprus Cyprus Popular Bank Ltd. Czech Republic Ceskoslovenska Obchodni Banka, AS. Denmark Danske Bank A/S Ecuador Banco de la Produccion S.A. 1 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Egypt HSBC Bank Egypt S.A.E. (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Estonia AS Hansabank Finland Nordea Bank Finland Plc. France BNP Paribas Securities Services, S.A. Deutsche Bank AG, Netherlands (operating through its Paris branch) Germany Deutsche Bank AG Ghana Barclays Bank of Ghana Limited Greece National Bank of Greece S.A. Guinea-Bissau via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Hong Kong Standard Chartered Bank (Hong Kong) Limited Hungary HVB Bank Hungary Rt. Iceland Kaupthing Bank hf. India Deutsche Bank AG The Hongkong and Shanghai Banking Corporation Limited Indonesia Deutsche Bank AG Ireland Bank of Ireland Israel Bank Hapoalim B.M. Italy BNP Paribas Securities Services, S.A. Ivory Coast Societe Generale de Banques en Cote d'Ivoire Jamaica Bank of Nova Scotia Jamaica Ltd. Japan Mizuho Corporate Bank Ltd. Sumitomo Mitsui Banking Corporation Jordan HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Kazakhstan HSBC Bank Kazakhstan (as delegate of the Hongkong and Shanghai Banking Corporation Limited) 2 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Kenya Barclays Bank of Kenya Limited Republic of Korea Deutsche Bank AG The Hongkong and Shanghai Banking Corporation Limited Latvia A/s Hansabanka Lebanon HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Lithuania SEB Vilniaus Bankas AB Malaysia Standard Chartered Bank Malaysia Berhad Mali via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Malta HSBC Bank Malta Plc. Mauritius The Hongkong and Shanghai Banking Corporation Limited Mexico Banco National de Mexico S.A. Morocco Attijariwafa bank Namibia Standard Bank Namibia Limited Netherlands Deutsche Bank N.V. KAS BANK N.V. New Zealand Westpac Banking Corporation Niger via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Nigeria Stanbic Bank Nigeria Limited Norway Nordea Bank Norge ASA Oman HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Pakistan Deutsche Bank AG Palestine HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) 3 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Panama HSBC Bank (Panama) S.A. Peru Citibank del Peru, S.A. Philippines Standard Chartered Bank Poland Bank Handlowy w Warszawie S.A. Portugal Banco Comercial Portugues S.A. Puerto Rico Citibank N.A. Qatar HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Romania ING Bank N.V. Russia ING Bank (Eurasia) ZAO, Moscow Senegal via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Serbia HVB Bank Serbia and Montenegro a.d. Singapore DBS Bank Limited United Overseas Bank Limited Slovak Republic Ceskoslovenska Obchodni Banka, A.S., pobocka zahranicnej banky v SR Slovenia Bank Austria Creditanstalt d.d. - Ljubljana South Africa Nedcor Bank Limited Standard Bank of South Africa Limited Spain Santander Central Hispano Investment S.A. Sri Lanka The Hongkong and Shanghai Banking Corporation Limited Swaziland Standard Bank Swaziland Limited Sweden Skandinaviska Enskilda Banken AB Switzerland UBS AG Taiwan - R.O.C. Central Trust of China Thailand Standard Chartered Bank 4 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Togo via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Trinidad & Tobago Republic Bank Limited Tunisia Banque Internationale Arabe de Tunisie Turkey Citibank, A.S. Uganda Barclays Bank of Uganda Limited Ukraine ING Bank Ukraine United Arab Emirates HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) United Kingdom State Street Bank and Trust Company, United kingdom Branch Uruguay BankBoston, N.A. Venezuela Citibank, N.A. Vietnam The Hongkong and Shanghai Banking Corporation Limited Zambia Barclays Bank of Zambia Plc. Zimbabwe Barclays Bank of Zimbabwe Limited
5 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Argentina Caja de Valores S.A. Australia Austraclcar Limited Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank Division) Bahrain Clearing, Settlement, and Depository System of the Bahrain Stock Exchange Bangladesh Central Depository Bangladesh Limited Belgium Banque Nationale de Belgique Caisse Interprofessionnelle de Depots et de Virements de Titres, S.A. Benin Depositaire Central - Banque de Reglement Bermuda Bermuda Securities Depository Brazil Central de Custodia e de Liquidacao Financeira de Titulos Privados (CETIP) Companhia Brasileira de Liquidacao e Custodia Sistema Especial de Liquidacao e de Custodia (SELIC) Bulgaria Bulgarian National Bank Central Depository AD Burkina Faso Depositaire Central - Banque de Reglement Canada The Canadian Depository for Securities Limited Chile Deposito Central de Valores S.A. People's Republic of China China Securities Depository and Clearing Corporation Limited Shanghai Branch China Securities Depository and Clearing Corporation Limited Shenzhen Branch Colombia Deposito Central de Valores Deposito Centralizado de Valores de Colombia S..A. (DECEVAL) Costa Rica Central de Valores S.A. Croatia Sredisnja Depozitarna Agencija d.d. 1 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Cyprus Central Depository and Central Registry Czech Republic Czech National Bank Stredisko cennych papiru - Ceska republika Denmark Vaerdipapircentralen (Danish Securities Center) Egypt Misr for Clearing, Settlement, and Depository S.A.E. Estonia AS Eesti Vaartpaberikeskus Finland Suomen Arvopaperikeskus France Euroclear France Germany Clearstream Banking AG, Frankfurt Greece Apothetirion Titlon AE Central Securities Depository Bank of Greece, System for Monitoring Transactions in Securities in Book-Entry Form Guinea-Bissau Depositaire Central - Banque de Reglement Hong Kong Central Moneymarkets Unit Hong Kong Securities Clearing Company Limited Hungary Kozponti Elszamolohaz es Ertektar (Budapest) Rt. (KELER) Iceland Icelandic Securities Depository Limited India Central Depository Services (India) Limited National Securities Depository Limited Reserve Bank of India Indonesia Bank Indonesia PT Kustodian Sentral Efek Indonesia Israel Tel Aviv Stock Exchange Clearing House Ltd. (TASE Clearinghouse) Italy Monte Titoli S.p.A. Ivory Coast Depositaire Central - Banque de Reglement Jamaica Jamaica Central Securities Depository 2 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Japan Bank of Japan - Net System Japan Securities Depository Center (JASDEC) Incorporated Jordan Securities Depository Center Kazakhstan Central Securities Depository Kenya Central Depository and Settlement Corporation Limited Central Bank of Kenya Republic of Korea Korea Securities Depository Latvia Latvian Central Depository Lebanon Banque du Liban Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (Midclear) S.A.L. Lithuania Central Securities Depository of Lithuania Malaysia Bank Negara Malaysia Bursa Malaysia Depository Sdn. Bhd. Mali Depositaire Central - Banque de Retlement Malta Central Securities Depository of the Malta Stock Exchange Mauritius Bank of Mauritius Central Depository and Settlement Co. Ltd. Mexico S.D. Indeval, S.A. de C.V. Morocco Maroclear Namibia Bank of Namibia Netherlands Euroclear Nederland New Zealand New Zealand Central Securities Depository Limited Niger Depositaire Central - Banque de Reglement Nigeria Central Securities Clearing System Limited 3 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Norway Verdipapirsentralen (Norwegian Central Securities Depository) Oman Muscat Depository & Securities Registration Company, SAOC Pakistan Central Depository Company of Pakistan Limited State Bank of Pakistan Palestine Clearing, Depository and Settlement, a department of the Palestine Stock Exchange Panama Central Latinoamericana de Valores, S.A. (LatinClear) Peru Caja de Valores y Liquidaciones, Institution de Compensacion y Liquidation de Valores S.A Philippines Philippine Central Depository, Inc. Registry of Scripless Securities (ROSS) of the Bureau of Treasury Poland Rejestr Papierow Wartosciowych Krajowy Depozyt Papierow Wartosciowych S.A. Portugal INTERBOLSA -- Sociedade Gestora de Sistemas de Liquidacao e de Sistemas Centralizados de Valores Mobiliarios, S.A. Qatar Central Clearing and Registration (CCR), a department of the Doha Securities Market Romania Bucharest Stock Exchange Registry Division National Bank of Romania National Securities Clearing, Settlement and Depository Company Russia Vneshtorgbank, Bank for Foreign Trade of the Russian Federation Senegal Depositaire Central - Banque de Reglement Serbia Central Registrar and Central Depository for Securities Singapore The Central Depository (Pte) Limited Monetary Authority of Singapore Slovak Republic Naodna banka slovenska Centralny depozitar cennych papierov SR, a.s. 4 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Slovenia KDD - Centralna klirinsko depotna druzba d.d. South Africa Share Transactions Totally Electronic (STRATE) Ltd. Spain IBERCLEAR Sri Lanka Central Depository System (Pvt) Limited Sweden Vardepapperscentralen VPC AB (Swedish Central Securities Depository) Switzerland Segalntersettle AG (SIS) Taiwan - R.O.C. Taiwan Securities Central Depository Company Limited Thailand Bank of Thailand Thailand Securities Depository Company Limited Togo Depositaire Central - Banque de Reglement Trinidad and Tobago Trinidad and Tobago Central Bank Tunisia Societe Tunisienne Interprofessionelle pour la Compensation et de Depots des Valeurs Mobilieres (STICODEVAM) Turkey Central Bank of Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK) Uganda Bank of Uganda Ukraine Mizhregionalny Fondovy Souz National Bank of Ukraine United Arab Emirates Clearing and Depository System, a department of the Dubai Financial Market United Kingdom CrestCo. Uruguay Banco Central del Uruguay Venezuela Banco Central de Venezuela Caja Venezolana de Valores Vietnam Securities Registration, Clearing and Settlement, Depository Department of the Securities Trading Center 5 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Zambia Bank of Zambia LuSE Central Shares Depository Limited TRANSNATIONAL Euroclear Clearstream Banking, S.A.
6 SCHEDULE C MARKET INFORMATION
PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION - -------------------------------- ----------------- (scheduled frequency) The Guide to Custody in World Markets An overview of settlement and safekeeping procedures, custody (hardcopy annually and regular practices and foreign investor considerations for the markets website updates) in which State Street offers custodial services. Global Custody Network Review Information relating to Foreign Sub-Custodians in State Street's - ----------------------------- Global Custody Network. The Review stands as an integral part of (annually) the materials that State Street provides to its U.S. mutual fund clients to assist them in complying with SEC Rule 17f-5. The Review also gives insight into State Street's market expansion and Foreign Sub-Custodian selection processes, as well as the procedures and controls used to monitor the financial condition and performance of our Foreign Sub-Custodian banks. Securities Depository. Review Custody risk analyses of the Foreign Securities Depositories presently - ----------------------------- operating in Network markets. This publication is an integral part of (annually) the materials that State Street provides to its U.S. mutual fund clients to meet informational obligations created by SEC Rule 17f-7. Global Legal Survey With respect to each market in which State Street offers custodial - ------------------- services, opinions relating to whether local law restricts (i) access (annually) of a fund's independent public accountants to books and records of a Foreign Sub-Custodian or Foreign Securities System, (ii) a fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (iii) a fund's ability to recover in the event of a loss by a Foreign Sub-Custodian or Foreign Securities System, and (iv) the ability of a foreign investor to convert cash and cash equivalents to U.S. dollars. Subcustodian Agreements Copies of the contracts that State Street has entered into with - ----------------------- each Foreign Sub-Custodian that maintains U.S. mutual fund (annually) assets in the markets in which State Street offers custodial services. Global Market Bulletin Information on changing settlement and custody conditions in markets - ---------------------- where State Street offers custodial services. Includes changes in market (daily or as necessary) and tax regulations, depository developments, dematerialization information, as well as other market changes that may impact State Street's clients. Foreign Custody Advisories For those markets where State Street offers custodial services that (as necessary) exhibit special risks or infrastructures impacting custody, State Street issues market advisories to highlight those unique market factors which might impact our ability to offer recognized custody service levels. Material Change Notices Informational letters and accompanying materials confirming (presently on a quarterly State Street's foreign custody arrangements, including a basis or as otherwise necessary) summary of material changes with Foreign Sub-Custodians that have occurred during the previous quarter. The notices also identify any material changes in the custodial risks associated with maintaining assets with Foreign Securities Depositories.
SCHEDULE D TRI-PARTY REPO CUSTODIAN BANKS ACCOUNT NUMBERS NONE FUNDS TRANSFER ADDENDUM OPERATING GUIDELINES 1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit Client's account(s) upon the receipt of a payment order in compliance with the selected Security Procedure chosen for funds transfer and in the amount of money that State Street has been instructed to transfer. State Street shall execute payment orders in compliance with the Security Procedure and with the Client's instructions on the execution date provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after this time will be deemed to have been received on the next business day. 2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it has designated on the Selection Form was selected by the Client from Security Procedures offered by State Street. The Client agrees that the Security Procedures are reasonable and adequate for its wire transfer transactions and agrees to be bound by any payment orders, amendments and cancellations, whether or not authorized, issued in its name and accepted by State Street after being confirmed by any of the selected Security Procedures. The Client also agrees to be bound by any other valid and authorized payment order accepted by State Street. The Client shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated in writing to State Street. The Client must notify State Street immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Client's authorized personnel. State Street shall verify the authenticity of all instructions according to the Security Procedure. 3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the account number shall take precedence and govern. Financial institutions that receive payment orders initiated by State Street at the instruction of the Client may also process payment orders on the basis of account numbers, regardless of any name included in the payment order. State Street will also rely on any financial institution identification numbers included in any payment order, regardless of any financial institution name included in the payment order. 4. REJECTION: State Street reserves the right to decline to process or delay the processing of a payment order which (a) is in excess of the collected balance in the account to be charged at the time of State Street's receipt of such payment order; (b) if initiating such payment order would cause State Street, in State Street's sole judgment, to exceed any volume, aggregate dollar, network, time, credit or similar limits upon wire transfers which are applicable to State Street; or (c) if State Street, in good faith, is unable to satisfy itself that the transaction has been properly authorized. 5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure provided that such requests are received in a timely manner affording State Street reasonable opportunity to act. However, State Street assumes no liability if the request for amendment or cancellation cannot be satisfied. 6. ERRORS: State Street shall assume no responsibility for failure to detect any erroneous payment order provided that State Street complies with the payment order instructions as received and State Street complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders. 7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless State Street is notified of the unauthorized payment order within thirty (30) days of notification by State Street of the acceptance of such payment order. In no event shall State Street be liable for special, indirect or consequential damages, even if advised of the possibility of such damages and even for failure to execute a payment order. 8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a Client initiates or receives ACH credit and debit entries pursuant to these Guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, State Street will act as an Originating Depository Financial Institution and/or Receiving Depository Institution, as the case may be, with respect to such entries. Credits given by State Street with respect to an ACH credit entry are provisional until State Street receives final settlement for such entry from the Federal Reserve Bank. If State Street does not receive such final settlement, the Client agrees that State Street shall receive a refund of the amount credited to the Client in connection with such entry, and the party making payment to the Client via such entry shall not be deemed to have paid the amount of the entry. 9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment orders shall ordinarily be provided within 24 hours. Notice may be delivered through State Street's proprietary information systems, such as, but not limited to Horizon and GlobalQuest(R), account statements, advices, or by facsimile or callback. The Client must report any objections to the execution of a payment order within 30 days. FUNDS TRANSFER ADDENDUM 10. LIABILITY ON FOREIGN ACCOUNTS: State Street shall not be required to repay any deposit made at a non-U.S. branch of State Street, or any deposit made with State Street and denominated in a non-U.S. dollar currency, if repayment of such deposit or the use of assets denominated in the non-U.S. dollar currency is prevented, prohibited or otherwise blocked due to: (a) an act of war, insurrection or civil strife; (b) any action by a non-U.S. government or instrumentality or authority asserting governmental, military or police power of any kind, whether such authority be recognized as a defacto or a dejure government, or by any entity, political or revolutionary movement or otherwise that usurps, supervenes or otherwise materially impairs the normal operation of civil authority; or(c) the closure of a non-U.S. branch of State Street in order to prevent, in the reasonable judgment of State Street, harm to the employees or property of State Street. The obligation to repay any such deposit shall not be transferred to and may not be enforced against any other branch of State Street. The foregoing provisions constitute the disclosure required by Massachusetts General Laws, Chapter 167D, Section 36. While State Street is not obligated to repay any deposit made at a non-U.S. branch or any deposit denominated in a non-U.S. currency during the period in which its repayment has been prevented, prohibited or otherwise blocked, State Street will repay such deposit when and if all circumstances preventing, prohibiting or otherwise blocking repayment cease to exist. 11. MISCELLANEOUS: State Street and the Client agree to cooperate to attempt to recover any funds erroneously paid to the wrong party or parties, regardless of any fault of State Street or the Client, but the party responsible for the erroneous payment shall bear all costs and expenses incurred in trying to effect such recovery. These Guidelines may not be amended except by a written agreement signed by the parties. FUNDS TRANSFER ADDENDUM Security Procedure(s) Selection Form - ------------------------------------ Please select one or more of the funds transfer security procedures indicated below. [ ] SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a cooperative society owned and operated by member financial institutions that provides telecommunication services for its membership. Participation is limited to securities brokers and dealers, clearing and depository institutions, recognized exchanges for securities, and investment management institutions. SWIFT provides a number of security features through encryption and authentication to protect against unauthorized access, loss or wrong delivery of messages, transmission errors, loss of confidentiality and fraudulent changes to messages. SWIFT is considered to be one of the most secure and efficient networks for the delivery of funds transfer instructions. Selection of this security procedure would be most appropriate for existing SWIFT members. [X] STANDING INSTRUCTIONS Standing Instructions may be used where funds are transferred to a broker on the Client's established list of brokers with which it engages in foreign exchange transactions. Only the date, the currency and the currency amount are variable. In order to establish this procedure, State Street will send to the Client a list of the brokers that State Street has determined are used by the Client. The Client will confirm the list in writing, and State Street will verify the written confirmation by telephone. Standing Instructions will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the Standing Instruction will be confirmed by telephone prior to execution. [X] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data communications between the Client and State Street. Security procedures include encryption and or the use of a test key by those individuals authorized as Automated Batch Verifiers. Clients selecting this option should have an existing facility for completing CPU-CPU transmissions. This delivery mechanism is typically used for high-volume business. [ ] GLOBAL HORIZON INTERCHANGESM FUNDS TRANSFER SERVICE Global Horizon Interchange Funds Transfer Service (FTS) is a State Street proprietary microcomputer-based wire initiation system. FTS enables Clients to electronically transmit authenticated Fedwire, CHIPS or internal book transfer instructions to State Street. This delivery mechanism is most appropriate for Clients with a low-to-medium number of transactions (5-75 per day), allowing Clients to enter, batch, and review wire transfer instructions on their PC prior to release to State Street. [ ] TELEPHONE CONFIRMATION (CALLBACK) Telephone confirmation will be used to verify all non-repetitive funds transfer instructions received via untested facsimile or phone. This procedure requires Clients to designate individuals as authorized initiators and authorized verifiers. State Street will verify that the instruction contains the signature of an authorized person and prior to execution, will contact someone other than the originator at the Client's location to authenticate the instruction. Selection of this alternative is appropriate for Clients who do not have the capability to use other security procedures. [ ] REPETITIVE WIRES For situations where funds are transferred periodically (minimum of one instruction per calendar quarter) from an existing authorized account to the same payee (destination bank and account number) and only the date and currency amount are variable, a repetitive wire may be implemented. Repetitive wires will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the instruction will be confirmed by telephone prior to execution. Telephone confirmation is used to establish this process. Repetitive wire instructions must be reconfirmed annually. This alternative is recommended whenever funds are frequently transferred between the same two accounts. [X] TRANSFERS INITIATED BY FACSIMILE The Client faxes wire transfer instructions directly to State Street Mutual Fund Services. Standard security procedure requires the use of a random number test key for all transfers. Every six months the Client receives test key logs from State Street. The test key contains alpha-numeric characters, which the Client puts on each document faxed to State Street. This procedure ensures all wire instructions received via fax are authorized by the Client. We provide this option for Clients who wish to batch wire instructions and transmit these as a group to State Street Mutual Fund Services once or several times a day. FUNDS TRANSFER ADDENDUM [ ] AUTOMATED CLEARING HOUSE (ACH) State Street receives an automated transmission or a magnetic tape from a Client for the initiation of payment (credit) or collection (debit) transactions through the ACH network. The transactions contained on each transmission or tape must be authenticated by the Client. Clients using ACH must select one or more of the following delivery options: [ ] GLOBAL HORIZON INTERCHANGE AUTOMATED CLEARING HOUSE SERVICE Transactions are created on a microcomputer, assembled into batches and delivered to State Street via fully authenticated electronic transmissions in standard NACHA formats. [ ] Transmission from Client PC to State Street Mainframe with Telephone Callback [ ] Transmission from Client Mainframe to State Street Mainframe with Telephone Callback [ ] Transmission from DST Systems to State Street Mainframe with Encryption [ ] Magnetic Tape Delivered to State Street with Telephone Callback State Street is hereby instructed to accept funds transfer instructions only via the delivery methods and security procedures indicated. The selected delivery methods and security procedure(s) will be effective ____________________ for payment orders initiated by our organization. KEY CONTACT INFORMATION Whom shall we contact to implement your selection(s)? CLIENT OPERATIONS CONTACT ALTERNATE CONTACT /s/ Emily Bredahl /s/ Paula Ryan - -------------------------------------- -------------------------------------- Name Name Columbia Wanger Asset Management Columbia Wanger Asset Management 227 W. Monroe St., Ste. 3000 227 W. Monroe St., Ste. 3000 - -------------------------------------- -------------------------------------- Address Address Chicago, IL 60606 Chicago, IL 60606 - -------------------------------------- -------------------------------------- City/State/Zip Code City/State/Zip Code (312) 634-9210 (312) 634-9211 - -------------------------------------- -------------------------------------- Telephone Number Telephone Number (312) 634-1927 (312) 634-0014 - -------------------------------------- -------------------------------------- Facsimile Number Facsimile Number - -------------------------------------- SWIFT Number - -------------------------------------- Telex Number FUNDS TRANSFER ADDENDUM INSTRUCTION(S) TELEPHONE CONFIRMATION FUND ___________________________________________________________________________ INVESTMENT ADVISER _____________________________________________________________ AUTHORIZED INITIATORS Please Type or Print Please provide a listing of Fund officers or other individuals who are currently authorized to INITIATE wire transfer instructions to State Street: NAME TITLE (Specify whether position SPECIMEN SIGNATURE is with Fund or Investment Adviser) ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ AUTHORIZED VERIFIERS Please Type or Print Please provide a listing of Fund officers or other individuals who will be CALLED BACK to verify the initiation of repetitive wires of $10 million or more and all non-repetitive wire instructions: NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF ANY) ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ REMOTE ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT ADDENDUM to that certain Amended and Restated Master Custodian Agreement dated as of September 19, 2005 (the "Custodian Agreement") between those registered investment companies identified on Appendix A thereto (the "Customer") and State Street Bank and Trust Company, including its subsidiaries and affiliates ("State Street"). State Street has developed and utilizes proprietary accounting and other systems in conjunction with the custodian services which State Street provides to the Customer. In this regard, State Street maintains certain information in databases under its control and ownership which it makes available to its customers (the "Remote Access Services"). The Services State Street agrees to provide the Customer, and its designated investment advisors, consultants or other third parties authorized by State Street ("Authorized Designees") with access to In~SightSM as described in Exhibit A or such other systems as may be offered from time to time (the "System") on a remote basis. Security Procedures The Customer agrees to comply, and to cause its Authorized Designees to comply, with remote access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the System and access to the Remote Access Services. The Customer agrees to advise State Street immediately in the event that it learns or has reason to believe that any person to whom it has given access to the System or the Remote Access Services has violated or intends to violate the terms of this Addendum and the Customer will cooperate with State Street in seeking injunctive or other equitable relief. The Customer agrees to discontinue use of the System and Remote Access Services, if requested, for any security reasons cited by State Street. Fees Fees and charges for the use of the System and the Remote Access Services and related payment terms shall be as set forth in the Custody Fee Schedule in effect from time to time between the parties (the "Fee Schedule"). The Customer shall be responsible for any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street). Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street. Proprietary Information/Injunctive Relief The System and Remote Access Services described herein and the databases, computer programs, screen formats, report formats, interactive design techniques, formulae, processes, systems, software, knowhow, algorithms, programs, training aids, printed materials, methods, books, records, files, documentation and other information made available to the Customer by State Street as part of the Remote Access Services and through the use of the System and all copyrights, patents, trade secrets and other proprietary rights of State Street related thereto are the exclusive, valuable and confidential property of State Street and its relevant licensors (the "Proprietary Information"). The Customer agrees on behalf of itself and its i relevant licensors (the "Proprietary Information"). The Customer agrees on behalf of itself and its Authorized Designees to keep the Proprietary Information confidential and to limit access to its employees and Authorized Designees (under a similar duty of confidentiality) who require access to the System for the purposes intended. The foregoing shall not apply to Proprietary Information in the public domain or required by law to be made public. The Customer agrees to use the Remote Access Services only in connection with the proper purposes of this Addendum. The Customer will not, and will cause its employees and Authorized Designees not to, (i) permit any third party to use the System or the Remote Access Services, (ii) sell, rent, license or otherwise use the System or the Remote Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the System or the Remote Access Services for any fund, trust or other investment vehicle without the prior written consent of State Street, or (iv) allow or cause any information transmitted from State Street's databases, including data from third party sources, available through use of the System or the Remote Access Services, to be published, redistributed or retransmitted for other than use for or on behalf of the Customer, as State Street's customer. The Customer agrees that neither it nor its Authorized Designees will modify the System in any way; enhance or otherwise create derivative works based upon the System; nor will the Customer or Customer's Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System. The Customer acknowledges that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury to State Street inadequately compensable in damages at law and that State Street shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available. Limited Warranties State Street represents and warrants that it is the owner of and has the right to grant access to the System and to provide the Remote Access Services contemplated herein. Because of the nature of computer information technology, including but not limited to the use of the Internet, and the necessity of relying upon third party sources, and data and pricing information obtained from third parties, the System and Remote Access Services are provided "AS IS", and the Customer and its Authorized Designees shall be solely responsible for the investment decisions, results obtained, regulatory reports and statements produced using the Remote Access Services. State Street and its relevant licensors will not be liable to the Customer or its Authorized Designees for any direct or indirect, special, incidental, punitive or consequential damages arising out of or in any way connected with the System or the Remote Access Services, nor shall either party be responsible for delays or nonperformance under this Addendum arising out of any cause or event beyond such party's control. State Street will take reasonable steps to ensure that its products (and those of its third-party suppliers) reflect the available state of the art technology to offer products that are Year 2000 compliant, including, but not limited to, century recognition of dates, calculations that correctly compute same century and multi century formulas and date values, and interface values that reflect the date issues arising between now and the next one-hundred years, and if any changes are required, State Street will make the changes to its products at no cost to you and in a commercially reasonable time frame and will require third-party suppliers to do likewise. The Customer will do likewise for its systems. EXCEPT AS EXPRESSLY SET FORTH IN THIS ADDENDUM, STATE STREET, FOR ITSELF AND ITS RELEVANT LICENSORS, EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES ii CONCERNING THE SYSTEM AND THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE. Infringement State Street will defend or, at our option, settle any claim or action brought against the Customer to the extent that it is based upon an assertion that access to the System or use of the Remote Access Services by the Customer under this Addendum constitutes direct infringement of any patent or copyright or misappropriation of a trade secret, provided that the Customer notifies State Street promptly in writing of any such claim or proceeding and cooperates with State Street in the defense of such claim or proceeding. Should the System or the Remote Access Services or any part thereof become, or in State Street's opinion be likely to become, the subject of a claim of infringement or the like under any applicable patent or copyright or trade secret laws, State Street shall have the right, at State Street's sole option, to (i) procure for the Customer the right to continue using the System or the Remote Access Services, (ii) replace or modify the System or the Remote Access Services so that the System or the Remote Access Services becomes noninfringing, or (iii) terminate this Addendum without further obligation. Termination Either party to the Custodian Agreement may terminate this Addendum (i) for any reason by giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to the Customer or thirty (30) days' notice in the case of notice from the Customer to State Street of termination, or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. This Addendum shall in any event terminate within ninety (90) days after the termination of the Custodian Agreement. In the event of termination, the Customer will return to State Street all copies of documentation and other confidential information in its possession or in the possession of its Authorized Designees. The foregoing provisions with respect to confidentiality and infringement will survive termination for a period of three (3) years. Miscellaneous This Addendum and the exhibits hereto constitute the entire understanding of the parties to the Custodian Agreement with respect to access to the System and the Remote Access Services. This Addendum cannot be modified or altered except in a writing duly executed by each of State Street and the Customer and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. By its execution of the Custodian Agreement, the Customer accepts responsibility for its and its Authorized Designees' compliance with the terms of this Addendum. iii EXHIBIT A TO REMOTE ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT IN~SIGHTSM System Product Description In~SightSM provides bilateral information delivery, interoperability, and on-line access to State Street. In~SightSM allows users a single point of entry into State Street's diverse systems and applications. Reports and data from systems such as Investment Policy MonitorSM, Multicurrency HorizonSM, Securities Lending, Performance & Analytics, and Electronic Trade Delivery can be accessed through In~SightSM. This Internet-enabled application is designed to run from a Web browser and perform across low-speed data lines or corporate high-speed backbones. In~SightSM also offers users a flexible toolset, including an ad-hoc query function, a custom graphics package, a report designer, and a scheduling capability. Data and reports offered through In~SightSM will continue to increase in direct proportion with the customer roll out, as it is viewed as the information delivery system will grow with State Street's customers. iv EX-99.H(6) 6 file006.txt PARTICIPATION AGREEMENT [FOR RETAIL FUNDS] PARTICIPATION AGREEMENT AMONG MERRILL LYNCH LIFE INSURANCE COMPANY, COLUMBIA ACORN TRUST, AND COLUMBIA FUNDS DISTRIBUTOR, INC. THIS AGREEMENT, dated as of the 4th day of March, 2005, by and among Merrill Lynch Life Insurance Company (the "Company"), an Arkansas life insurance company, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (hereinafter referred to individually and collectively as the "Account"), Columbia Acorn Trust (the "Fund"), a Massachusetts business trust, and Columbia Funds Distributor, Inc. (the "Underwriter"), a corporation organized and existing under the laws of the Commonwealth of Massachusetts. WHEREAS, the shares of beneficial interests of the Fund are divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended, (the "1940 Act") and shares of the Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, Columbia Wanger Asset Management, L.P. (the "Adviser"), a Delaware limited partnership, which serves as investment adviser to the Fund, is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended; WHEREAS, the Underwriter, which serves as distributor to the Fund, is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); WHEREAS, the Account is duly established and maintained as a segregated asset account, duly established by the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to variable annuity contracts set forth in Schedule A hereto, as it may be amended from time to time by mutual written agreement (the "Contracts"); WHEREAS, each Portfolio issues shares to the general public and pursuant to this Agreement, will issue shares to the separate accounts of insurance companies ("Participating Insurance Companies") to fund variable annuity contracts sold to certain qualified pension and retirement plans; 1 WHEREAS, the Company intends to purchase shares of other open-end management investment companies that offer shares to the general public to fund the Contracts; WHEREAS, the Fund and the Underwriter know of no reason why shares in any Portfolio may not be sold to insurance companies to fund variable annuity contracts sold to certain qualified pension and retirement plans; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios (and classes thereof) listed in Schedule B hereto, as it may be amended from time to time by mutual written agreement (the "Designated Portfolios") on behalf of the Account to fund the aforesaid Contracts, and the Underwriter is authorized to sell such shares in the Designated Portfolios, and classes thereof, to the Account at net asset value. NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund, and the Underwriter agree as follows: ARTICLE I. Sale of Fund Shares 1.1. The Fund has granted to the Underwriter exclusive authority to distribute the Fund's shares, and pursuant to a written agreement between the Fund and the Underwriter, the Underwriter is authorized to make available to the Company for purchase on behalf of the Account, shares of the Designated Portfolios and classes thereof listed on Schedule B to this Agreement (the "Shares"). Pursuant to such authority and instructions, and subject to Article IX hereof, the Underwriter agrees to make the Shares available to the Company for purchase on behalf of the Account, such purchases to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, the Board of Trustees of the Fund (the "Board") may suspend or terminate the offering of Shares of any Designated Portfolio or class thereof, if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, suspension or termination is necessary in the best interests of the shareholders of such Designated Portfolio including, but not limited to, if the Fund determines that trading activity represents market timing or trading activity is disruptive and may potentially harm the Fund. 1.2. The Fund shall redeem, at the Company's request, any full or fractional Shares held by the Company on behalf of the Account, such redemptions to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem Shares attributable to Contract owners except in the circumstances permitted in Section 9.3 of this Agreement, and (ii) the Fund may delay redemption of Shares of 2 any Designated Portfolio to the extent permitted by the 1940 Act, and any rules, regulations, or orders thereunder. 1.3. Purchase and Redemption Procedures (a) The Fund hereby appoints the Company as an agent of the Fund for the limited purpose of receiving purchase and redemption requests on behalf of the Account (but not with respect to any Fund shares that may be held in the general account of the Company) for the Shares made available hereunder, based on allocations of amounts to the Account or subaccounts thereof under the Contracts and other transactions relating to the Contracts or the Account. All transactions in Account shares shall be executed through the Omnibus Accounts of Company's affiliate Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Omnibus Accounts"). Receipt of any such request (or relevant transactional information therefor) on any day the New York Stock Exchange (the "Exchange") is open for regular session trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC (a "Business Day") by the Company as such limited agent of the Fund prior to the time that the Fund ordinarily calculates its net asset value as described from time to time in the Fund Prospectus (which as of the date of execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on that same Business Day, provided that the Fund receives notice of such request by 10 a.m. Eastern Time on the next following Business Day, or in the event of systems issues necessitating later delivery of such purchase and redemption requests, by 11 a.m. Eastern Time on the next following Business Day. Company and Fund understand that it is the intent of the parties that Fund receive such purchase and redemption requests from Company on behalf of the Account by 9:00 a.m. Eastern Time on the next following Business Day. Company will provide to the Transfer Agent or its designee via the NSCC Fund SERV DCC&S platform (which utilizes the "as of" record layout within Fund/SERV) one or more files detailing the instructions received with respect to each contract prior to 4:00 p.m. Eastern Time on the prior Business Day for each of the Funds. If for any reason Merrill Lynch is unable to transmit the file(s) with respect to any Business Day, Merrill Lynch will notify the Transfer Agent or its designee by 11:00 a.m. Eastern Time on the next following Business Day. (b)The Company shall pay for Shares on the same day that it notifies the Fund of a purchase request for such Shares. Payment for Shares shall be made in federal funds transmitted to the Fund via the NSCC Fund/SERV DCC&S platform to be received by the Fund by 6:30 p.m. Eastern Time on the day the Fund is notified of the purchase request for Shares (unless the Fund determines and so advises the Company that sufficient proceeds are available from redemption of Shares of other Designated Portfolios effected pursuant to redemption requests tendered by the Company on behalf of the Account). Upon receipt of federal funds transmitted via the NSCC Fund/SERV DCC&S platform, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. Notwithstanding any provision of this Agreement to the contrary, for purchase and redemption instructions with respect to any Shares, Company and the Fund will settle the purchase and redemption transactions referred to herein, via the NSCC Fund/SERV platform settlement process on the next Business Day following the effective trade date. The Fund will provide to Company a daily 3 transmission of positions and trading activity taking place in the Omnibus Accounts using Company's affiliate's proprietary Inventory Control System ("ICS"). (c) Payment for Shares redeemed by the Account or the Company shall be made in federal funds transmitted via the NSCC Fund/SERV DCC&S platform to the Company on the next Business Day after the Fund is properly notified of the redemption order of such Shares (unless redemption proceeds are to be applied to the purchase of Shares of other Designated Portfolios in accordance with Section 1.3(b) of this Agreement), except that the Fund reserves the right to redeem Shares in assets other than cash and to delay payment of redemption proceeds to the extent permitted under Section 22(e) of the 1940 Act and any Rules thereunder, and in accordance with the procedures and policies of the Fund as described in the then current prospectus. The Fund shall not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds by the Company; the Company alone shall be responsible for such action. (d) Any purchase or redemption request for Shares held or to be held in the Company's general account shall be effected at the closing net asset value per share next determined after the Fund's receipt of such request as set forth in Section 1.3(a) herein. 1.4. The Fund shall use its best efforts to make the closing net asset value per Share for each Designated Portfolio available to the Company by 6:30 p.m. Eastern Time each Business Day via the NSCC Profile 1 platform, and in any event, as soon as reasonably practicable after the closing net asset value per Share for such Designated Portfolio is calculated, and shall calculate such closing net asset value, including any applicable daily dividend factor, in accordance with the Fund's Prospectus. In the event the Fund is unable to make the 6:30 p.m. deadline stated herein, transactions shall be held until it is administratively feasible for the Company to update these transactions in the next nightly cycle following receipt of information regarding the Fund's net asset value per share. Held transactions processed the following nightly cycle shall then be processed "as of" the original trade date and Columbia Funds Services, Inc. shall bear any loss resulting from such "as of" processing. Neither the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates shall be liable for any information provided to the Company pursuant to this Agreement which information is based on incorrect information supplied by the Company to the Fund or the Underwriter. Any material error in the calculation or reporting of the closing net asset value, including any applicable daily dividend factor per Share shall be reported promptly upon discovery to the Company. In such event the Company shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct closing net asset value, including any applicable daily dividend factor per Share and the Company shall not bear the cost of correcting such errors. Any error of a lesser amount shall be corrected in the next business day's net asset value per Share. 1.5. Notwithstanding anything to the contrary contained in this Agreement, the Fund will make available for purchase by the Company, on its behalf and on behalf of the Account, a class of shares available at net asset value which are not subject to a contingent deferred sales 4 charge or redemption fee. The Fund shall furnish notice (via the NSCC Profile II platform) to the Company as soon as reasonably practicable of any income dividends or capital gain distributions payable on any Shares. The form of payment of dividends and capital gains distributions will be determined in accordance with the Company's operational procedures in effect at the time of the payment of such dividend or distribution. At this time the Company, on its behalf and on behalf of the Account, hereby elects to receive all such dividends and distributions as are payable on any Shares in the form of additional Shares of that Designated Portfolio. The Company will reinvest the additional Shares of that Designated Fund through a trade processed via the NSCC platform. The Company reserves the right, on its behalf and on behalf of the Account, to revoke this election and to receive all such dividends and capital gain distributions in the form of cash. The parties understand and agree that all transactions of Account shares contemplated herein shall be executed through the Omnibus Account and that Company's affiliate, Merrill Lynch, Pierce, Fenner & Smith, Inc. will receive all such dividends and distributions in the form of cash which Company, in turn, will immediately reinvest in the form of additional Shares of that Designated Portfolio. The Transfer Agent shall notify the Company promptly of the number of Shares so issued as payment of such dividends and distributions. 1.6. Issuance and transfer of Shares shall be by book entry only and executed through the Omnibus Accounts. Stock certificates will not be issued to the Company or the Account. Purchase and redemption orders for Fund shares shall be recorded in an appropriate ledger for the Account or the appropriate subaccount of the Account. 1.7 Fund Information. (a) The Fund will provide (or cause to be provided) to Company the information set forth in Schedule C hereto. In addition, notwithstanding anything contained in this Agreement to the contrary, the Fund hereby agrees that the Company may use such information in communications prepared for the Contracts, including, but not limited to, application, marketing, sales and other communications materials. The Fund will provide timely notification to Company of any change to the information described in Part I of Schedule C including without limitation any change to the CUSIP number or symbol designation of a Fund. Such notification shall be given to the Company as soon as practicable after a public announcement of such a change and prior to the effective date of the change. (b) Notwithstanding anything to the contrary in this Agreement, upon request, the Fund will provide the Company with prospectuses, proxy materials, financial statements, reports and other materials relating to each Fund in sufficient quantity for each Contract owner invested in the Fund. (c) With the exception of (i) listings of product offerings; (ii) materials in the public domain (e.g., magazine articles and trade publications); and (iii) materials used by the Company on an internal basis only, the Company agrees not to furnish or cause to be furnished to any third parties or to display publicly or publish any information or materials relating to the Fund or Designated Portfolios, except such materials and information as may be distributed to the Company by the Fund for public use or broker/dealer use only or approved for distribution by the Fund upon the Company's request. 5 1.8. The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other investors and the cash value of the Contracts may be invested in other investment companies. The Company acknowledges that shares of the Fund are offered and sold directly to members of the general public, and are not and will not be sold directly to insurance companies and their separate accounts and certain qualified retirement plus in accordance with Section 817 (h)(4) of the Internal Revenue Code of 1986, as amended, and Treasury Regulation 1.817-5. ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the Contracts (a) are, or prior to issuance will be, registered under the 1933 Act, or (b) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal securities and state securities and insurance laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law, that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account under Arkansas insurance laws, and that it (a) has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, or alternatively (b) has not registered the Account in proper reliance upon an exclusion from registration under the 1940 Act. The Company shall register and qualify the Contracts or interests therein as securities in accordance with the laws of the various states only if and to the extent deemed advisable by the Company. 2.2 The Company agrees to purchase and redeem the shares of the Designated Portfolios offered by the then current prospectus and statement of additional information of the Designated Portfolios in accordance with the provisions of such current prospectus and statement of additional information, including the policy on trading shares. The Company shall not permit any person other than a Contract owner or his/her agent to give instructions to the Company that would require the Company to redeem or exchange shares of the Designated Portfolios. 2.3. The Fund represents and warrants that Shares sold pursuant to this Agreement shall be registered under the 1933 Act and, duly authorized for issuance and sold in compliance with applicable state and federal securities laws. and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous 6 offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund, the Adviser, or the Underwriter. 2.4. The Fund makes no representations as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies, objectives and restrictions) complies with the insurance laws and regulations of any state. The Fund agrees that it will reasonably cooperate with the Company and furnish to the Company upon written request any specified information required by state insurance laws or otherwise so that the Company can obtain the authority needed to issue the Contracts in the various states. 2.5. The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in compliance with all material respects with any applicable state and federal securities laws. 2.7. The Fund represents and warrants that all of its trustees/directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.8 The Company represents and warrants that it has adopted and implemented policies and procedures reasonably designed to ensure that all orders received by the Company at or after the close of the Exchange on each Business Day will not be aggregated with orders received by the Company before the close of the Exchange on such Business Day. 2.9 The Company represents and warrants that it has adopted policies and procedures ("Disruptive Trading Procedures") which are designed to detect contractowners engaging in disruptive trading activities, including frequent or short-term transfers, and imposing transfer restrictions on such contractowners. 2.10 Each party to this Agreement agrees to cooperate fully with any and all efforts by any party to assure any party that the it has implemented effective compliance policies and procedures administered by qualified personnel as required by and in accordance with any and all applicable laws, rules and regulations. 7 ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. The Underwriter shall provide the Company with as many copies of the Fund's current prospectus as the Company may reasonably request. The Fund or the Underwriter shall bear the expense of printing copies of the current prospectus and profiles for the Fund that will be distributed to existing Contract owners whose contracts are funded by the Fund's shares, and the Company shall bear the expense of printing copies of the Fund's prospectus and profiles that are used in connection with offering the Contracts issued by the Company. If requested by the Company in lieu thereof, the Fund shall provide such documentation (including a final copy of the new prospectus on diskette at the Fund's or Underwriter's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing of the Fund's prospectus and profiles for existing Contract owners whose contracts are funded by the Fund's shares to be at the Fund's or Underwriter's expense). 3.2. The Fund's prospectus shall state that the current Statement of Additional Information ("SAI") for the Fund is available, and the Underwriter (or the Fund), at its expense, shall provide a reasonable number of copies of such SAI free of charge to the Company for itself and for any owner of a Contract who requests such SAI. 3.3. Upon the reasonable request of the Company, the Fund shall provide the Company with information regarding the Fund's expenses, which information may include a table of fees and related narrative disclosure for use in any prospectus or other descriptive document relating to a Contract. 3.4. The Fund, at its or the Underwriter's expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.5. The Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Shares in accordance with instructions received from Contract owners; and (iii) vote Shares for which no instructions have been received in the same proportion as Shares of such portfolio for which instructions have been received, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners or to the extent otherwise required by law. 8 The Company will vote Shares held in any segregated asset account for its own account in the same proportion as Shares of such portfolio for which voting instructions have been received from Contract owners, to the extent permitted by law. The Company and its agents shall not oppose or interfere with the solicitation of proxies for Fund shares held for such Contract owners. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund, the Underwriter, or their designees, each piece of sales literature or other promotional material that the Company develops and in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named. No such material shall be used until approved by the Fund, the Underwriter or their designees. The Fund, the Underwriter, or their designees will be deemed to have approved such sales literature or promotional material unless the Fund or its designee objects or provides comments to the Company within ten (10) Business Days after receipt of such material. The Fund, the Underwriter, or their designees reserve the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no such material shall be used if the Fund, the Underwriter or their designees so object. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or the Adviser or the Underwriter in connection with the sale of the Contracts other than the information or representations contained in the registration statement or profiles or prospectus or SAI for the Fund shares, as such registration statement and profiles and prospectus or SAI may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to be furnished, to the Company, each piece of sales literature or other promotional material that it develops and in which the Company, and/or its Account, is named. No such material shall be used until approved by the Company. The Company will be deemed to have approved such sales literature or promotional material unless the Company objects or provides comments to the Fund, the Underwriter, or their designee within ten Business Days after receipt of such material. The Company reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Company and/or its Account is named, and no such material shall be used if the Company so objects. 4.4. The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, the Account, or the Contracts other than the information or representations contained in a registration statement and prospectus (which shall include an offering memorandum, if any, if the Contracts issued by the 9 Company or interests therein are not registered under the 1933 Act), or SAI for the Contracts, as such registration statement, prospectus, or SAI may be amended or supplemented from time to time, or in published reports for the Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, profiles, prospectuses, SAIs, shareholder reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Fund or its shares, promptly after the filing of such document(s) with the SEC or other regulatory authorities. 4.6. The Company will provide to the Fund or the Underwriter at least one complete copy of all registration statements, prospectuses (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Account, promptly after the filing of such document(s) with the SEC or other regulatory authorities. The Company shall provide to the Fund and the Underwriter any complaints received from the Contract owners pertaining to the Fund or the Designated Portfolio. 4.7. The Fund will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Designated Portfolio, and of any material change in the Fund's registration statement, particularly any change resulting in a change to the registration statement or prospectus for any Account. The Fund will work with the Company so as to enable the Company to solicit proxies from Contract owners, or to make changes to its prospectus or registration statement, in an orderly manner. 4.8. For purposes of this Article IV, the phrase "sales literature and other promotional materials" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, SAIs, shareholder reports, proxy materials, and any other communications distributed or made generally available with regard to the Fund. ARTICLE V. Fees and Expenses 10 5.1. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund's shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes on the issuance or transfer of the Fund's shares. 5.2. The Company shall bear the expenses of distributing the Fund's prospectus to owners of Contracts in connection with the offer of Contracts, issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners. ARTICLE VI. Qualification under Subchapter M 6.1. The Fund represents that it is or will be qualified as a Regulated Investment Company under Subchapter M of the Code, and that it will use its best efforts to maintain such qualification (under Subchapter M or any successor or similar provisions) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. ARTICLE VII. Indemnification 7.1. Indemnification By the Company 7.1(a). The Company agrees to indemnify and hold harmless the Fund and the Underwriter and each of its trustees/directors and officers, employees, agents and each person, if any, who controls the Fund or the Underwriter within the meaning of Section 15 of the 1933 Act or who is under common control with the Underwriter (collectively, the "Indemnified Parties" for purposes of this Section 7.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statements of any material fact contained in the registration statement, prospectus (which shall include a written description of a Contract that is not registered under the 1933 Act), or SAI for the Contracts or contained in sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a 11 material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement, prospectus or SAI for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, or sales literature of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or its agents or persons under the Company's authorization or control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any material failure by the Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Section 6.1 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; as limited by and in accordance with the provisions of Sections 7.1(b) and 7.1(c) hereof. 7.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of its obligations or duties under this Agreement. 7.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have 12 notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 7.2. Indemnification by the Underwriter 7.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 7.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or profile or prospectus or SAI or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or the Fund by or on behalf of the Company for use in the registration statement, profile, prospectus or SAI for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or 13 (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter or persons under their control) or wrongful conduct of the Fund or the Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Underwriter; or (iv) arise as a result of any failure by the Fund or the Underwriter to provide the services and furnish the materials under the terms of this Agreement (including a failure of the Fund, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Section 6.1 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund or the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund or the Underwriter; or (vi) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 7.2(b) and 7.2(c) hereof. 7.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or the Account, whichever is applicable. 7.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first 14 legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Party, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.2(d). The Indemnified Party will promptly notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE VIII. Applicable Law 8.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 8.2. This Agreement shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules, and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE IX. Termination 9.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party, for any reason with respect to some or all Designated Portfolios, by three (3) months advance written notice delivered to the other parties; or (b) termination by the Company upon one month advance written notice to the Fund and the Underwriter based upon the Company's determination that shares of the Fund are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter in the event any of the Shares are not registered, issued, or 15 sold in accordance with applicable state and/or federal law or such law precludes the use of such Shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Fund or the Underwriter in the event that formal administrative proceedings are instituted against the Company or the broker-dealer(s) marketing the Contracts by the NASD, the SEC, the Insurance Commissioner, or like official of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Shares; provided, however, that the Fund or the Underwriter determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (e) termination by the Company in the event that formal administrative proceedings are instituted against the Fund or the Underwriter by the NASD, the SEC, or any state securities or insurance department, or any other regulatory body; provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund or the Underwriter to perform its obligations under this Agreement; or (f) termination by the Company by written notice to the Fund and the Underwriter with respect to any Designated Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M as specified in Section 6.1 hereof, or if the Company reasonably believes that such Portfolio may fail to so qualify or comply; or (g) termination by the Fund or the Underwriter by written notice to the Company, if the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that the Fund, the Adviser, or the Underwriter has suffered a material adverse change in its business, operations, financial 16 condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (i) termination by the Company upon any substitution of the shares of another investment company or series thereof for Shares in accordance with the terms of the Contracts, provided that the Company has given at least 45 days prior written notice to the Fund and the Underwriter of the date of substitution; or (j) transaction by any party upon another party's failure to cure a material breech of any provision of this Agreement within 30 days after written notice thereof; or (k) termination by the Fund in the event that the Fund's Board of Trustees determines that such termination would be in the best interests of shareholders; or (l) termination by any party upon assignment, unless such assignment is made with the written consent of each party. 9.2. (a) Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional Shares pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"), provided the Company continues to pay the costs set forth in Section 3.1 and 5.2 and unless the Underwriter requests that the Company seek an order pursuant to Section 26(c) of the 1940 Act to permit the substitution of other securities for the Shares. The Underwriter agree to split the cost of seeking such an order, and the Company agrees that it shall reasonably cooperate with the Underwriter and seek such an order upon request. Specifically, the owners of the Existing Contracts may be permitted to reallocate investments in the Fund, redeem investments in the Fund, and/or invest in the Fund upon the making of additional purchase payments under the existing Contracts (subject to any such election by the Underwriter). The parties agree that this Section 9.2 shall not apply to any terminations under Section 9.1(i) of this Agreement. (b) In the event of a termination of this agreement pursuant to Section 9.1 ( other than 9.1(i)), the Company shall promptly notify the Fund and the Underwriter whether the Fund and the Underwriter will be required to continue to make shares available after such termination; in such circumstances, the provisions of this Agreement shall remain in effect except for Section 9.1 hereof, and thereafter any party may terminate the Agreement ( the "Final Termination"), as so continued 17 pursuant this Section 9.2,upon prior written notice to the other parties, such notice to be for a period this reasonable under the circumstances but, if given by the Fund or the Underwriter, need not be greater than six months. (c) The Company, the Fund and the Underwriter agree to cooperate in respect of the measures that are necessary or appropriate to effect the Final Termination of this Agreement, and will give reasonable assistance to each other in that regard, including steps necessary or appropriate to ensure that an Account owns no shares of the Fund after the Final Termination of this Agreement. 9.3 The Company shall not redeem Shares attributable to the Contracts (as opposed to Shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days prior written notice to the Fund and Underwriter, as permitted by an order of the SEC pursuant to Section 26(c) of the 1940 Act, but only if a substitution of other securities for the Shares is consistent with the terms of the Contracts, or (iv) as permitted under the terms of the Contract. Upon request, the Company will promptly furnish to the Fund and the Underwriter reasonable assurance that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contacts, the Company shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 45 days notice of its intention to do so. 9.4. Notwithstanding any termination of this Agreement, each party's obligation under Article VII to indemnify the other parties and the Company's obligation under Section 3.5 regarding pass-through voting shall survive. ARTICLE X. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Columbia Acorn Trust 227 West Monroe St., Suite 3000 Chicago, Illinois 60606 Attn: Bruce H. Lauer Vice President, Secretary and Treasurer 18 If to the Company: Merrill Lynch Life Insurance Company 1300 Merrill Lynch Drive, 2nd Floor Pennington, NJ 08534 Attn: Edward W. Diffin, Jr. Vice President & Senior Counsel If to the Underwriter: Attn: ARTICLE XI. Miscellaneous 11.1. All persons dealing with the Fund must look solely to the property of the Fund, and in the case of a series company, the respective Designated Portfolios listed on Schedule B hereto as though each such Designated Portfolio had separately contracted with the Company and the Underwriter for the enforcement of any claims against the Fund. The parties agree that neither the Board nor any member thereof, officers, agents, or shareholders of the Fund assume any personal liability or responsibility for obligations entered into by or on behalf of the Fund. 11.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information has come into the public domain. 11.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 11.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 11.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 11.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance 19 regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Arkansas Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable contract operations of the Company are being conducted in a manner consistent with the Arkansas variable annuity laws and regulations and any other applicable law or regulations. The Company agrees to pay the reasonable costs and expenses incurred by the Fund or the Underwriter in connection with responding to such a request. 11.7. The rights, remedies, and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 11.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto 11.9. A copy of the Declaration of Trust of the Fund is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets of and property of the Fund or the Designated Portfolios, as a series of the Fund. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. MERRILL LYNCH LIFE INSURANCE COMPANY: By its authorized officer /s/ Edward W. Diffin, Jr. ------------------------------- By: Edward W. Diffin, Jr. Title: Vice President & Senior Counsel Date: March 3, 2005 20 COLUMBIA ACORN TRUST By its authorized officer /s/ Bruce H. Lauer ------------------------------- By: Bruce H. Lauer Title: Vice President, Secretary and Treasurer Date: March 3, 2005 COLUMBIA FUNDS DISTRIBUTOR, INC. By its authorized officer By: /s/ Donald Froude ------------------------------------- Title: President ------------------------------------- Date: March , 2005 ------------------------------------- 21 SCHEDULE A SEPARATE ACCOUNTS OF THE COMPANY Merrill Lynch Life Variable Annuity Separate Account D. Merrill Lynch Investor Choice Annuity (IRA Series) (Form ML-VA-010 and state variations thereof) Dated: March 4, 2005 SCHEDULE B DESIGNATED PORTFOLIOS AND CLASSES Columbia Acorn USA - A Shares Dated: March 4, 2005 SCHEDULE C FUND MATERIALS PART I. Fund Description o The Fund will provide to Company or a common service provider designated by Company as soon as practicable after public disclosure of such information, the Fund's average annual returns for the 1, 5, and 10 year periods ending the current month on a Net Asset Value basis. o The Fund will provide to Company as soon as practicable after public disclosure of such information a description of the Fund including holdings, portfolio composition, largest sectors and geographical allocation and a statement of objective in a mutually acceptable format. PART II. Fund Information and Materials The Fund will provide to Company the following information and materials on an as needed basis, as requested by Company: o A supply of materials relating to the Funds (prospectuses, quarterly reports and other brochures) to include with contract application sales, marketing and communication materials. o Specific investment performance information that may be requested that cannot be obtained from the prospectus. This would include specific calculations on various performance parameters which must be provided on a time-sensitive basis (usually within 5 business days) provided that such information has been disclosed to the public. EX-99.H(7) 7 file007.txt PARTICIPATION AGREEMENT [FOR RETAIL FUNDS] PARTICIPATION AGREEMENT AMONG ML LIFE INSURANCE COMPANY OF NEW YORK, COLUMBIA ACORN TRUST, AND COLUMBIA FUNDS DISTRIBUTOR, INC. THIS AGREEMENT, dated as of the 4th day of March, 2005, by and among ML Life Insurance Company of New York (the "Company"), an New York life insurance company, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (hereinafter referred to individually and collectively as the "Account"), Columbia Acorn Trust (the "Fund"), a Massachusetts business trust, and Columbia Funds Distributor, Inc. (the "Underwriter"), a corporation organized and existing under the laws of the Commonwealth of Massachusetts. WHEREAS, the shares of beneficial interests of the Fund are divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended, (the "1940 Act") and shares of the Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, Columbia Wanger Asset Management, L.P. (the "Adviser"), a Delaware limited partnership, which serves as investment adviser to the Fund, is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended; WHEREAS, the Underwriter, which serves as distributor to the Fund, is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); WHEREAS, the Account is duly established and maintained as a segregated asset account, duly established by the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to variable annuity contracts set forth in Schedule A hereto, as it may be amended from time to time by mutual written agreement (the "Contracts"); WHEREAS, each Portfolio issues shares to the general public and pursuant to this Agreement, will issue shares to the separate accounts of insurance companies ("Participating Insurance Companies") to fund variable annuity contracts sold to certain qualified pension and retirement plans; 1 WHEREAS, the Company intends to purchase shares of other open-end management investment companies that offer shares to the general public to fund the Contracts; WHEREAS, the Fund and the Underwriter know of no reason why shares in any Portfolio may not be sold to insurance companies to fund variable annuity contracts sold to certain qualified pension and retirement plans; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios (and classes thereof) listed in Schedule B hereto, as it may be amended from time to time by mutual written agreement (the "Designated Portfolios") on behalf of the Account to fund the aforesaid Contracts, and the Underwriter is authorized to sell such shares in the Designated Portfolios, and classes thereof, to the Account at net asset value. NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund, and the Underwriter agree as follows: ARTICLE I. Sale of Fund Shares 1.1. The Fund has granted to the Underwriter exclusive authority to distribute the Fund's shares, and pursuant to a written agreement between the Fund and the Underwriter, the Underwriter is authorized to make available to the Company for purchase on behalf of the Account, shares of the Designated Portfolios and classes thereof listed on Schedule B to this Agreement (the "Shares"). Pursuant to such authority and instructions, and subject to Article IX hereof, the Underwriter agrees to make the Shares available to the Company for purchase on behalf of the Account, such purchases to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, the Board of Trustees of the Fund (the "Board") may suspend or terminate the offering of Shares of any Designated Portfolio or class thereof, if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, suspension or termination is necessary in the best interests of the shareholders of such Designated Portfolio including, but not limited to, if the Fund determines that trading activity represents market timing or trading activity is disruptive and may potentially harm the Fund. 1.2. The Fund shall redeem, at the Company's request, any full or fractional Shares held by the Company on behalf of the Account, such redemptions to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem Shares attributable to Contract owners except in the circumstances permitted in Section 9.3 of this Agreement, and (ii) the Fund may delay redemption of Shares of 2 any Designated Portfolio to the extent permitted by the 1940 Act, and any rules, regulations, or orders thereunder. 1.3. Purchase and Redemption Procedures (a) The Fund hereby appoints the Company as an agent of the Fund for the limited purpose of receiving purchase and redemption requests on behalf of the Account (but not with respect to any Fund shares that may be held in the general account of the Company) for the Shares made available hereunder, based on allocations of amounts to the Account or subaccounts thereof under the Contracts and other transactions relating to the Contracts or the Account. All transactions in Account shares shall be executed through the Omnibus Accounts of Company's affiliate Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Omnibus Accounts"). Receipt of any such request (or relevant transactional information therefor) on any day the New York Stock Exchange (the "Exchange") is open for regular session trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC (a "Business Day") by the Company as such limited agent of the Fund prior to the time that the Fund ordinarily calculates its net asset value as described from time to time in the Fund Prospectus (which as of the date of execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on that same Business Day, provided that the Fund receives notice of such request by 10 a.m. Eastern Time on the next following Business Day, or in the event of systems issues necessitating later delivery of such purchase and redemption requests, by 11 a.m. Eastern Time on the next following Business Day. Company and Fund understand that it is the intent of the parties that Fund receive such purchase and redemption requests from Company on behalf of the Account by 9:00 a.m. Eastern Time on the next following Business Day. Company will provide to the Transfer Agent or its designee via the NSCC Fund SERV DCC&S platform (which utilizes the "as of" record layout within Fund/SERV) one or more files detailing the instructions received with respect to each contract prior to 4:00 p.m. Eastern Time on the prior Business Day for each of the Funds. If for any reason Merrill Lynch is unable to transmit the file(s) with respect to any Business Day, Merrill Lynch will notify the Transfer Agent or its designee by 11:00 a.m. Eastern Time on the next following Business Day. (b)The Company shall pay for Shares on the same day that it notifies the Fund of a purchase request for such Shares. Payment for Shares shall be made in federal funds transmitted to the Fund via the NSCC Fund/SERV DCC&S platform to be received by the Fund by 6:30 p.m. Eastern Time on the day the Fund is notified of the purchase request for Shares (unless the Fund determines and so advises the Company that sufficient proceeds are available from redemption of Shares of other Designated Portfolios effected pursuant to redemption requests tendered by the Company on behalf of the Account). Upon receipt of federal funds transmitted via the NSCC Fund/SERV DCC&S platform, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. Notwithstanding any provision of this Agreement to the contrary, for purchase and redemption instructions with respect to any Shares, Company and the Fund will settle the purchase and redemption transactions referred to herein, via the NSCC Fund/SERV platform settlement process on the next Business Day following the effective trade date. The Fund will provide to Company a daily 3 transmission of positions and trading activity taking place in the Omnibus Accounts using Company's affiliate's proprietary Inventory Control System ("ICS"). (c) Payment for Shares redeemed by the Account or the Company shall be made in federal funds transmitted via the NSCC Fund/SERV DCC&S platform to the Company on the next Business Day after the Fund is properly notified of the redemption order of such Shares (unless redemption proceeds are to be applied to the purchase of Shares of other Designated Portfolios in accordance with Section 1.3(b) of this Agreement), except that the Fund reserves the right to redeem Shares in assets other than cash and to delay payment of redemption proceeds to the extent permitted under Section 22(e) of the 1940 Act and any Rules thereunder, and in accordance with the procedures and policies of the Fund as described in the then current prospectus. The Fund shall not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds by the Company; the Company alone shall be responsible for such action. (d) Any purchase or redemption request for Shares held or to be held in the Company's general account shall be effected at the closing net asset value per share next determined after the Fund's receipt of such request as set forth in Section 1.3(a) herein. 1.4. The Fund shall use its best efforts to make the closing net asset value per Share for each Designated Portfolio available to the Company by 6:30 p.m. Eastern Time each Business Day via the NSCC Profile 1 platform, and in any event, as soon as reasonably practicable after the closing net asset value per Share for such Designated Portfolio is calculated, and shall calculate such closing net asset value, including any applicable daily dividend factor, in accordance with the Fund's Prospectus. In the event the Fund is unable to make the 6:30 p.m. deadline stated herein, transactions shall be held until it is administratively feasible for the Company to update these transactions in the next nightly cycle following receipt of information regarding the Fund's net asset value per share. Held transactions processed the following nightly cycle shall then be processed "as of" the original trade date and Columbia Funds Services, Inc. shall bear any loss resulting from such "as of" processing. Neither the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates shall be liable for any information provided to the Company pursuant to this Agreement which information is based on incorrect information supplied by the Company to the Fund or the Underwriter. Any material error in the calculation or reporting of the closing net asset value, including any applicable daily dividend factor per Share shall be reported promptly upon discovery to the Company. In such event the Company shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct closing net asset value, including any applicable daily dividend factor per Share and the Company shall not bear the cost of correcting such errors. Any error of a lesser amount shall be corrected in the next business day's net asset value per Share. 1.5. Notwithstanding anything to the contrary contained in this Agreement, the Fund will make available for purchase by the Company, on its behalf and on behalf of the Account, a class of shares available at net asset value which are not subject to a contingent deferred sales 4 charge or redemption fee. The Fund shall furnish notice (via the NSCC Profile II platform) to the Company as soon as reasonably practicable of any income dividends or capital gain distributions payable on any Shares. The form of payment of dividends and capital gains distributions will be determined in accordance with the Company's operational procedures in effect at the time of the payment of such dividend or distribution. At this time the Company, on its behalf and on behalf of the Account, hereby elects to receive all such dividends and distributions as are payable on any Shares in the form of additional Shares of that Designated Portfolio. The Company will reinvest the additional Shares of that Designated Fund through a trade processed via the NSCC platform. The Company reserves the right, on its behalf and on behalf of the Account, to revoke this election and to receive all such dividends and capital gain distributions in the form of cash. The parties understand and agree that all transactions of Account shares contemplated herein shall be executed through the Omnibus Account and that Company's affiliate, Merrill Lynch, Pierce, Fenner & Smith, Inc. will receive all such dividends and distributions in the form of cash which Company, in turn, will immediately reinvest in the form of additional Shares of that Designated Portfolio. The Transfer Agent shall notify the Company promptly of the number of Shares so issued as payment of such dividends and distributions. 1.6. Issuance and transfer of Shares shall be by book entry only and executed through the Omnibus Accounts. Stock certificates will not be issued to the Company or the Account. Purchase and redemption orders for Fund shares shall be recorded in an appropriate ledger for the Account or the appropriate subaccount of the Account. 1.7 Fund Information. (a) The Fund will provide (or cause to be provided) to Company the information set forth in Schedule C hereto. In addition, notwithstanding anything contained in this Agreement to the contrary, the Fund hereby agrees that the Company may use such information in communications prepared for the Contracts, including, but not limited to, application, marketing, sales and other communications materials. The Fund will provide timely notification to Company of any change to the information described in Part I of Schedule C including without limitation any change to the CUSIP number or symbol designation of a Fund. Such notification shall be given to the Company as soon as practicable after a public announcement of such a change and prior to the effective date of the change. (b) Notwithstanding anything to the contrary in this Agreement, upon request, the Fund will provide the Company with prospectuses, proxy materials, financial statements, reports and other materials relating to each Fund in sufficient quantity for each Contract owner invested in the Fund. (c) With the exception of (i) listings of product offerings; (ii) materials in the public domain (e.g., magazine articles and trade publications); and (iii) materials used by the Company on an internal basis only, the Company agrees not to furnish or cause to be furnished to any third parties or to display publicly or publish any information or materials relating to the Fund or Designated Portfolios, except such materials and information as may be distributed to the Company by the Fund for public use or broker/dealer use only or approved for distribution by the Fund upon the Company's request. 5 1.8. The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other investors and the cash value of the Contracts may be invested in other investment companies. The Company acknowledges that shares of the Fund are offered and sold directly to members of the general public, and are not and will not be sold directly to insurance companies and their separate accounts and certain qualified retirement plus in accordance with Section 817 (h)(4) of the Internal Revenue Code of 1986, as amended, and Treasury Regulation 1.817-5. ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the Contracts (a) are, or prior to issuance will be, registered under the 1933 Act, or (b) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal securities and state securities and insurance laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law, that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account under New York insurance laws, and that it (a) has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, or alternatively (b) has not registered the Account in proper reliance upon an exclusion from registration under the 1940 Act. The Company shall register and qualify the Contracts or interests therein as securities in accordance with the laws of the various states only if and to the extent deemed advisable by the Company. 2.2 The Company agrees to purchase and redeem the shares of the Designated Portfolios offered by the then current prospectus and statement of additional information of the Designated Portfolios in accordance with the provisions of such current prospectus and statement of additional information, including the policy on trading shares. The Company shall not permit any person other than a Contract owner or his/her agent to give instructions to the Company that would require the Company to redeem or exchange shares of the Designated Portfolios. 2.3. The Fund represents and warrants that Shares sold pursuant to this Agreement shall be registered under the 1933 Act and, duly authorized for issuance and sold in compliance with applicable state and federal securities laws. and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous 6 offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund, the Adviser, or the Underwriter. 2.4. The Fund makes no representations as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies, objectives and restrictions) complies with the insurance laws and regulations of any state. The Fund agrees that it will reasonably cooperate with the Company and furnish to the Company upon written request any specified information required by state insurance laws or otherwise so that the Company can obtain the authority needed to issue the Contracts in the various states. 2.5. The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in compliance with all material respects with any applicable state and federal securities laws. 2.7. The Fund represents and warrants that all of its trustees/directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.8 The Company represents and warrants that it has adopted and implemented policies and procedures reasonably designed to ensure that all orders received by the Company at or after the close of the Exchange on each Business Day will not be aggregated with orders received by the Company before the close of the Exchange on such Business Day. 2.9 The Company represents and warrants that it has adopted policies and procedures ("Disruptive Trading Procedures") which are designed to detect contractowners engaging in disruptive trading activities, including frequent or short-term transfers, and imposing transfer restrictions on such contractowners. 2.10 Each party to this Agreement agrees to cooperate fully with any and all efforts by any party to assure any party that the it has implemented effective compliance policies and procedures administered by qualified personnel as required by and in accordance with any and all applicable laws, rules and regulations. 7 ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. The Underwriter shall provide the Company with as many copies of the Fund's current prospectus as the Company may reasonably request. The Fund or the Underwriter shall bear the expense of printing copies of the current prospectus and profiles for the Fund that will be distributed to existing Contract owners whose contracts are funded by the Fund's shares, and the Company shall bear the expense of printing copies of the Fund's prospectus and profiles that are used in connection with offering the Contracts issued by the Company. If requested by the Company in lieu thereof, the Fund shall provide such documentation (including a final copy of the new prospectus on diskette at the Fund's or Underwriter's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing of the Fund's prospectus and profiles for existing Contract owners whose contracts are funded by the Fund's shares to be at the Fund's or Underwriter's expense). 3.2. The Fund's prospectus shall state that the current Statement of Additional Information ("SAI") for the Fund is available, and the Underwriter (or the Fund), at its expense, shall provide a reasonable number of copies of such SAI free of charge to the Company for itself and for any owner of a Contract who requests such SAI. 3.3. Upon the reasonable request of the Company, the Fund shall provide the Company with information regarding the Fund's expenses, which information may include a table of fees and related narrative disclosure for use in any prospectus or other descriptive document relating to a Contract. 3.4. The Fund, at its or the Underwriter's expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.5. The Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Shares in accordance with instructions received from Contract owners; and (iii) vote Shares for which no instructions have been received in the same proportion as Shares of such portfolio for which instructions have been received, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners or to the extent otherwise required by law. 8 The Company will vote Shares held in any segregated asset account for its own account in the same proportion as Shares of such portfolio for which voting instructions have been received from Contract owners, to the extent permitted by law. The Company and its agents shall not oppose or interfere with the solicitation of proxies for Fund shares held for such Contract owners. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund, the Underwriter, or their designees, each piece of sales literature or other promotional material that the Company develops and in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named. No such material shall be used until approved by the Fund, the Underwriter or their designees. The Fund, the Underwriter, or their designees will be deemed to have approved such sales literature or promotional material unless the Fund or its designee objects or provides comments to the Company within ten (10) Business Days after receipt of such material. The Fund, the Underwriter, or their designees reserve the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no such material shall be used if the Fund, the Underwriter or their designees so object. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or the Adviser or the Underwriter in connection with the sale of the Contracts other than the information or representations contained in the registration statement or profiles or prospectus or SAI for the Fund shares, as such registration statement and profiles and prospectus or SAI may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to be furnished, to the Company, each piece of sales literature or other promotional material that it develops and in which the Company, and/or its Account, is named. No such material shall be used until approved by the Company. The Company will be deemed to have approved such sales literature or promotional material unless the Company objects or provides comments to the Fund, the Underwriter, or their designee within ten Business Days after receipt of such material. The Company reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Company and/or its Account is named, and no such material shall be used if the Company so objects. 4.4. The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, the Account, or the Contracts other than the information or representations contained in a registration statement and prospectus (which shall include an offering memorandum, if any, if the Contracts issued by the 9 Company or interests therein are not registered under the 1933 Act), or SAI for the Contracts, as such registration statement, prospectus, or SAI may be amended or supplemented from time to time, or in published reports for the Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, profiles, prospectuses, SAIs, shareholder reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Fund or its shares, promptly after the filing of such document(s) with the SEC or other regulatory authorities. 4.6. The Company will provide to the Fund or the Underwriter at least one complete copy of all registration statements, prospectuses (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Account, promptly after the filing of such document(s) with the SEC or other regulatory authorities. The Company shall provide to the Fund and the Underwriter any complaints received from the Contract owners pertaining to the Fund or the Designated Portfolio. 4.7. The Fund will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Designated Portfolio, and of any material change in the Fund's registration statement, particularly any change resulting in a change to the registration statement or prospectus for any Account. The Fund will work with the Company so as to enable the Company to solicit proxies from Contract owners, or to make changes to its prospectus or registration statement, in an orderly manner. 4.8. For purposes of this Article IV, the phrase "sales literature and other promotional materials" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, SAIs, shareholder reports, proxy materials, and any other communications distributed or made generally available with regard to the Fund. ARTICLE V. Fees and Expenses 10 5.1. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund's shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes on the issuance or transfer of the Fund's shares. 5.2. The Company shall bear the expenses of distributing the Fund's prospectus to owners of Contracts in connection with the offer of Contracts, issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners. ARTICLE VI. Qualification under Subchapter M 6.1. The Fund represents that it is or will be qualified as a Regulated Investment Company under Subchapter M of the Code, and that it will use its best efforts to maintain such qualification (under Subchapter M or any successor or similar provisions) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. ARTICLE VII. Indemnification 7.1. Indemnification By the Company 7.1(a). The Company agrees to indemnify and hold harmless the Fund and the Underwriter and each of its trustees/directors and officers, employees, agents and each person, if any, who controls the Fund or the Underwriter within the meaning of Section 15 of the 1933 Act or who is under common control with the Underwriter (collectively, the "Indemnified Parties" for purposes of this Section 7.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statements of any material fact contained in the registration statement, prospectus (which shall include a written description of a Contract that is not registered under the 1933 Act), or SAI for the Contracts or contained in sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a 11 material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement, prospectus or SAI for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, or sales literature of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or its agents or persons under the Company's authorization or control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any material failure by the Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Section 6.1 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; as limited by and in accordance with the provisions of Sections 7.1(b) and 7.1(c) hereof. 7.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of its obligations or duties under this Agreement. 7.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have 12 notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 7.2. Indemnification by the Underwriter 7.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 7.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or profile or prospectus or SAI or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or the Fund by or on behalf of the Company for use in the registration statement, profile, prospectus or SAI for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or 13 (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter or persons under their control) or wrongful conduct of the Fund or the Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Underwriter; or (iv) arise as a result of any failure by the Fund or the Underwriter to provide the services and furnish the materials under the terms of this Agreement (including a failure of the Fund, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Section 6.1 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund or the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund or the Underwriter; or (vi) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 7.2(b) and 7.2(c) hereof. 7.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or the Account, whichever is applicable. 7.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first 14 legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Party, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.2(d). The Indemnified Party will promptly notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE VIII. Applicable Law 8.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 8.2. This Agreement shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules, and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE IX. Termination 9.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party, for any reason with respect to some or all Designated Portfolios, by three (3) months advance written notice delivered to the other parties; or (b) termination by the Company upon one month advance written notice to the Fund and the Underwriter based upon the Company's determination that shares of the Fund are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter in the event any of the Shares are not registered, issued, or 15 sold in accordance with applicable state and/or federal law or such law precludes the use of such Shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Fund or the Underwriter in the event that formal administrative proceedings are instituted against the Company or the broker-dealer(s) marketing the Contracts by the NASD, the SEC, the Insurance Commissioner, or like official of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Shares; provided, however, that the Fund or the Underwriter determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (e) termination by the Company in the event that formal administrative proceedings are instituted against the Fund or the Underwriter by the NASD, the SEC, or any state securities or insurance department, or any other regulatory body; provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund or the Underwriter to perform its obligations under this Agreement; or (f) termination by the Company by written notice to the Fund and the Underwriter with respect to any Designated Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M as specified in Section 6.1 hereof, or if the Company reasonably believes that such Portfolio may fail to so qualify or comply; or (g) termination by the Fund or the Underwriter by written notice to the Company, if the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that the Fund, the Adviser, or the Underwriter has suffered a material adverse change in its business, operations, financial 16 condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (i) termination by the Company upon any substitution of the shares of another investment company or series thereof for Shares in accordance with the terms of the Contracts, provided that the Company has given at least 45 days prior written notice to the Fund and the Underwriter of the date of substitution; or (j) transaction by any party upon another party's failure to cure a material breech of any provision of this Agreement within 30 days after written notice thereof; or (k) termination by the Fund in the event that the Fund's Board of Trustees determines that such termination would be in the best interests of shareholders; or (l) termination by any party upon assignment, unless such assignment is made with the written consent of each party. 9.2. (a) Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional Shares pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"), provided the Company continues to pay the costs set forth in Section 3.1 and 5.2 and unless the Underwriter requests that the Company seek an order pursuant to Section 26(c) of the 1940 Act to permit the substitution of other securities for the Shares. The Underwriter agree to split the cost of seeking such an order, and the Company agrees that it shall reasonably cooperate with the Underwriter and seek such an order upon request. Specifically, the owners of the Existing Contracts may be permitted to reallocate investments in the Fund, redeem investments in the Fund, and/or invest in the Fund upon the making of additional purchase payments under the existing Contracts (subject to any such election by the Underwriter). The parties agree that this Section 9.2 shall not apply to any terminations under Section 9.1(i) of this Agreement. (b) In the event of a termination of this agreement pursuant to Section 9.1 ( other than 9.1(i)), the Company shall promptly notify the Fund and the Underwriter whether the Fund and the Underwriter will be required to continue to make shares available after such termination; in such circumstances, the provisions of this Agreement shall remain in effect except for Section 9.1 hereof, and thereafter any party may terminate the Agreement ( the "Final Termination"), as so continued 17 pursuant this Section 9.2,upon prior written notice to the other parties, such notice to be for a period this reasonable under the circumstances but, if given by the Fund or the Underwriter, need not be greater than six months. (c) The Company, the Fund and the Underwriter agree to cooperate in respect of the measures that are necessary or appropriate to effect the Final Termination of this Agreement, and will give reasonable assistance to each other in that regard, including steps necessary or appropriate to ensure that an Account owns no shares of the Fund after the Final Termination of this Agreement. 9.3 The Company shall not redeem Shares attributable to the Contracts (as opposed to Shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days prior written notice to the Fund and Underwriter, as permitted by an order of the SEC pursuant to Section 26(c) of the 1940 Act, but only if a substitution of other securities for the Shares is consistent with the terms of the Contracts, or (iv) as permitted under the terms of the Contract. Upon request, the Company will promptly furnish to the Fund and the Underwriter reasonable assurance that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contacts, the Company shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 45 days notice of its intention to do so. 9.4. Notwithstanding any termination of this Agreement, each party's obligation under Article VII to indemnify the other parties and the Company's obligation under Section 3.5 regarding pass-through voting shall survive. ARTICLE X. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Columbia Acorn Trust 227 West Monroe St., Suite 3000 Chicago, Illinois 60606 Attn: Bruce H. Lauer Vice President, Secretary and Treasurer 18 If to the Company: ML Life Insurance Company of New York 1300 Merrill Lynch Drive, 2nd Floor Pennington, NJ 08534 Attn: Edward W. Diffin, Jr. Vice President & Senior Counsel If to the Underwriter: Attn: ARTICLE XI. Miscellaneous 11.1. All persons dealing with the Fund must look solely to the property of the Fund, and in the case of a series company, the respective Designated Portfolios listed on Schedule B hereto as though each such Designated Portfolio had separately contracted with the Company and the Underwriter for the enforcement of any claims against the Fund. The parties agree that neither the Board nor any member thereof, officers, agents, or shareholders of the Fund assume any personal liability or responsibility for obligations entered into by or on behalf of the Fund. 11.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information has come into the public domain. 11.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 11.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 11.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 11.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance 19 regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the New York Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable contract operations of the Company are being conducted in a manner consistent with the New York variable annuity laws and regulations and any other applicable law or regulations. The Company agrees to pay the reasonable costs and expenses incurred by the Fund or the Underwriter in connection with responding to such a request. 11.7. The rights, remedies, and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 11.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto 11.9. A copy of the Declaration of Trust of the Fund is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets of and property of the Fund or the Designated Portfolios, as a series of the Fund. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. ML LIFE INSURANCE COMPANY OF NEW YORK: By its authorized officer By: Edward W. Diffin, Jr. Title: Vice President & Senior Counsel Date: March 3, 2005 20 COLUMBIA ACORN TRUST By its authorized officer /s/ Bruce H. Lauer ------------------------- By: Bruce H. Lauer Title: Vice President, Secretary and Treasurer Date: March 3, 2005 COLUMBIA FUNDS DISTRIBUTOR, INC. By its authorized officer By: /s/ Donald Froude ------------------------------------- Title: President ------------------------------------- Date: March 3, 2005 ------------------------------------- 21 SCHEDULE A SEPARATE ACCOUNTS OF THE COMPANY ML of New York Variable Annuity Separate Account D. Merrill Lynch Investor Choice Annuity (IRA Series) (Form MLNY-VA-010) Dated: March 4, 2005 SCHEDULE B DESIGNATED PORTFOLIOS AND CLASSES Columbia Acorn USA - A Shares Dated: March 4, 2005 SCHEDULE C FUND MATERIALS PART I. Fund Description o The Fund will provide to Company or a common service provider designated by Company as soon as practicable after public disclosure of such information, the Fund's average annual returns for the 1, 5, and 10 year periods ending the current month on a Net Asset Value basis. o The Fund will provide to Company as soon as practicable after public disclosure of such information a description of the Fund including holdings, portfolio composition, largest sectors and geographical allocation and a statement of objective in a mutually acceptable format. PART II. Fund Information and Materials The Fund will provide to Company the following information and materials on an as needed basis, as requested by Company: o A supply of materials relating to the Funds (prospectuses, quarterly reports and other brochures) to include with contract application sales, marketing and communication materials. o Specific investment performance information that may be requested that cannot be obtained from the prospectus. This would include specific calculations on various performance parameters which must be provided on a time-sensitive basis (usually within 5 business days) provided that such information has been disclosed to the public. EX-99.I 8 file008.txt CONSENT OF BELL, BOYD & LLOYD Bell, Boyd & Lloyd LLC - ------------------------------------------------------------------------------ 70 West Madison Street, Suite 3100 o Chicago, Illinois 60602-4207 312.372.1121 o Fax 312.827.8000 May 1, 2006 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 EX-99.J 9 file009.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our reports dated February 22, 2006, relating to the financial statements and financial highlights which appear in the December 31, 2005 Annual Reports to the Shareholders of Columbia Acorn Trust, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the captions "Financial Highlights" and "Independent Registered Public Accounting Firm" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Chicago, Illinois April 27, 2006 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 JANUARY 1, 2006
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. 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 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 Profit Trading 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 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 who receive official notice under this Code of Ethics from Compliance. o The Code is intended to satisfy the requirements of Rule 204A-1 under the Investment Advisers Act of 1940. In addition, this Code is intended to satisfy certain NASD requirements for registered personnel. 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, transactions and accounts so they can be reviewed for conflicts with the investment activities of CWAM CLIENT ACCOUNTS (Part III) and compliance with this Code. Failure to comply with this Code may result in disciplinary action, including termination of employment. - -------------------------------------------------------------------------------- 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 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) 634-9829. - -------------------------------------------------------------------------------- 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/her 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 "CONTROL" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940. - -------------------------------------------------------------------------------- 5 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. (Subject to pre-clearance procedures in Appendix B.) 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 "CWAM" refers to Columbia Wanger Asset Management, L.P. o "CWAM CODE OF ETHICS COMMITTEE" consists of the CWAM COO, the CWAM CCO, the CWAM CIO and the CWAM Human Resource Director. The FUND CCO shall participate as a non-voting member of this Committee. 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 defined as money market funds or other funds designed to provide short term liquidity. 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 - -------------------------------------------------------------------------------- 6 o Research Analysts 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 "REGISTERED PERSONNEL" means an EMPLOYEE licensed and registered with the NASD. 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 OR CLIENT. 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 conducted in such a manner as to be consistent with the code of ethics and to avoid any actual or potential conflict of interest. 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. 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 are required to read and comply 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. APPROVED BROKER-DEALER REQUIREMENT FOR EMPLOYEE INVESTMENT ACCOUNTS Employees are required to read and comply with the Global Wealth and Investment Management ("Global WIM") Associate Designated Brokerage Account Policy. Unless an exception has been granted, that policy requires Employees to maintain their current and any new Associate Accounts with Banc of America Investment Services, Inc. (BAI) or Merrill Lynch. The policy is available on the intranet links portion of Global WIM's intranet homepage. D. NONPUBLIC INFORMATION SUPERVISED PERSONS are prohibited from disclosing to persons outside the firm any material nonpublic information about any client, the securities investments made by the firm on behalf of a client, information about contemplated securities transactions, or information regarding the firm's trading strategies, except as required to effectuate securities transactions on behalf of a client or for other legitimate business purposes. Disclosure of nonpublic information is a violation of CWAM's Non-Public Information Policy and breaches of CWAM's fiduciary duty. Incorporated in this Code are the provisions of the Funds' Portfolio Holdings Disclosure Policy in Appendix F. E. 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 Joe LaPalm at (312) 634-9829 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. F. 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, gifting of securities or other unusual circumstances no such redemption or exchange will be approved unless such investment has been held for at least 60 CALENDAR DAYS. All such exceptions require advance approval from the CCO. 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. - -------------------------------------------------------------------------------- 10 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: Late trading of mutual funds is illegal. No Employee shall 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. 4. MARKET TIMING PROHIBITION: No EMPLOYEE shall engage in mutual fund market timing activities. CWAM Management believes that the interests of a mutual fund's long-term shareholders and the ability of a mutual fund to manage its investments may be adversely affected when fund shares are repeatedly bought and sold (or exchanged) by any individual or entity within short periods of time to take advantage of short-term differentials in the net asset values of such funds. This practice, known as "market timing," can occur in several ways: either in direct purchases and sales of mutual fund shares, through rapid reallocation of funds held in 401(k) or similarly structured retirement or other accounts invested in mutual fund assets, or through the rapid reallocation of funds held in variable annuity and variable life policies invested in mutual fund assets. C. RESTRICTIONS APPLICABLE TO ALL EMPLOYEES WITH RESPECT TO TRANSACTIONS IN BANK OF AMERICA'S RETIREMENT PLANS As a reminder all Employees must comply with the Policy of Excessive Trading and Market Timing in the Bank of America Retirement Plans ("Retirement Plan Policy") located in the Retirement overview section of Personal Online, under the Benefits tab. The Retirement Plan Policy generally limits the frequency with which an associate can move dollars in and out of any retirement plan investment choice to once every 30 days. Associates who violate this policy will be restricted in their ability to make future fund exchanges and may be subject to disciplinary action - up to and including termination of employment. In addition to the Retirement Plan Policy, all employees participating in the Plans remain subject to the particular restrictions on trading mutual fund shares contained in the prospectuses of mutual funds offered by the Plans, including but not limited to Columbia Funds. 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. (NOTE: REGISTERED PERSONNEL are prohibited from purchasing IPO'S.) 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 - -------------------------------------------------------------------------------- 12 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; 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 CCO, in advance of a trade and will generally be granted only in rare cases of hardship, gifting of securities or other unusual circumstances 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 exceptions 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 1. MANAGER PRE-APPROVAL REQUIRED FOR IPOS AND PRIVATE PLACEMENTS All Investment Persons are required to obtain written manager pre-approval for personal investments in INITIAL PUBLIC OFFERINGS (IPOS) AND PRIVATE PLACEMENTS. "Manager pre-approval" is an approval by an investment person's immediate manager or the designee. After obtaining manager pre-approval, INVESTMENT PERSONS must obtain pre-approval from the CCO. The reporting and approval of these transactions are done on Form D. 2. 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 - -------------------------------------------------------------------------------- 13 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. PORTFOLIO MANAGERS 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. 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 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; - -------------------------------------------------------------------------------- 14 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. 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 which 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). - -------------------------------------------------------------------------------- 15 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. 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; - -------------------------------------------------------------------------------- 16 o Suspension of employment; o Termination of employment See the Sanctions Schedule in Appendix E for details. - -------------------------------------------------------------------------------- 17 Part III ADMINISTRATION AND REPORTING REQUIREMENTS This Section Applies to All Employees A. NEW 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 and Columbia 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 (including any investment accounts opened during the quarter) 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, and Columbia 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. - -------------------------------------------------------------------------------- 18 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 SECURITIES and OPEN-END MUTUAL FUNDS, including OPEN-END MUTUAL FUNDS that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia 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 or OPEN-END MUTUAL FUNDS. 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 the Columbia Acorn Funds, Wanger Advisors Trust, or Columbia Funds Families of Funds. If the non-proprietary 401(k) plan holdings are in a fund from the Columbia Acorn Funds, Wanger Advisors Trust, or Columbia Funds Families, the EMPLOYEE must provide 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. o ACCESS PERSONS on leave who do not have home access will be exempt from the above reporting requirements while on leave. ACCESS PERSONS on leave with home access will be responsible for the above reporting. - -------------------------------------------------------------------------------- NOTE: The exception of any non-proprietary 401(k) plan applies to company-directed 401(k) plans, but does not apply to self-directed 401(k) plans. If you have investments in plans that are self-directed, you are subject to the pre-clearing and reporting requirements of the Code of Ethics. Self-directed 401(k) plans offers the ability to direct stock investments, while company-directed 401(k) plans usually offer a limited number of investment options consisting of mutual funds in which one directs their investments. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 19 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 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. - -------------------------------------------------------------------------------- 20 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. - -------------------------------------------------------------------------------- 21 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. - -------------------------------------------------------------------------------- 22 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. - -------------------------------------------------------------------------------- 23 Appendix B CWAM Pre-Clearance Procedures for Personal Transactions in Covered Securities and Open-end Mutual Funds 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 Joe LaPalm, Linda Roth 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 next business 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: Joe LaPalm, Linda Roth 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. ACCESS PERSONS on leave who do not have home access will be exempt from the above pre-clearance requirements while on leave. ACCESS PERSONS on leave with home access will be responsible for the above pre-clearance requirements. If you have any questions regarding pre-clearance procedures for personal transactions, please contact either Joe LaPalm at (312) 634-9829. - -------------------------------------------------------------------------------- 24 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 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 - -------------------------------------------------------------------------------- 25 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. - -------------------------------------------------------------------------------- 26 Appendix D Exceptions to the Short-Term Profit Trading Ban Exceptions to the short-term trading ban on COVERED SECURITIES may be requested in advance to CCO, and will generally only be granted in rare cases of hardship, gifting of securities or other unusual circumstances 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. o An irrevocable charitable gift of securities provided no abuse is intended. - -------------------------------------------------------------------------------- 27 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 1ST OFFENSE: Written Warning confirms on file or evidence that 2ND OFFENSE**: Written Reprimand and/or Monetary Penalty duplicate statements have been 3RD OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts requested. for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Trading without receiving 1ST OFFENSE**: Written Warning pre-clearance(Covered Securities and 2ND OFFENSE: Written Reprimand and/or Monetary Penalty Mutual 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 1ST OFFENSE: Written Warning (Initial, Quarterly and Annual 2ND OFFENSE**: Written Reprimand and/or Monetary Penalty Reports) within the required time 3RD OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts period for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Purchasing an Initial Public Offering 1ST OR MORE OFFENSES**: Monetary Penalty, Freeze Trading accounts (IPO), Hedge Fund or Private Placement for 30-90 days and/or Suspension / Termination without receiving pre-clearance* ---------------------------------------- -------------------------------------------------------------------- Trading which violates the 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty same-day/open order or recommendation 2ND OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts restriction* for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Trading within the 14 calendar day 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty blackout 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 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty the 60 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 - -------------------------------------------------------------------------------- 28 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. B. Money Market Funds - -------------------------------------------------------------------------------- 29 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 - -------------------------------------------------------------------------------- 30 Form A INITIAL HOLDINGS REPORT For New CWAM Access and Investment Persons PLEASE COMPLETE THIS FORM AND SUBMIT IT TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) NO LATER THAN 10 DAYS AFTER YOU BECOME AN ACCESS PERSON OF COLUMBIA WANGER ASSET MANAGEMENT. YOU MUST REPORT: all accounts in which you have "Beneficial Ownership." "Beneficial Ownership" includes shares held in your name and/or 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. Although transactions in the following accounts are not always reportable, you must report the existence of the following types of accounts: (1) 401k plans; (2) accounts in which you have beneficial interest but not trading discretion, influence, or control; and (3) 529 plans. YOU NEED NOT 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. NAME: __________________________________________________________________ 1. CODE CLASSIFICATION (refer to pages 5-6 of the Code) I understand that for purposes of the Code I am classified as: [ ] An Access Person [ ] An Investment Person 2. PERSONAL HOLDINGS (refer to page 17 of the Code) [ ] Neither I, nor any member of my Family/Household, have Beneficial Ownership of Investment Accounts or Personal Holdings of any Covered Securities or Open-ended Mutual Funds. [ ] I and/or a member of my Family/Household have Beneficial Ownership of Investment Accounts or Personal Holdings of Covered Securities and/or Open-ended Mutual Funds* 3. INITIAL CERTIFICATION [ ] 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. All information provided in this Form A is true and complete to the best of my knowledge. Signature: _______________________________ Date: _____________________ * Please provide photocopies of the most recent statements from your reported accounts and holdings. - -------------------------------------------------------------------------------- 31 Form B QUARTERLY PERSONAL SECURITIES TRANSACTIONS REPORT For CWAM Access and Investment Persons PLEASE COMPLETE THIS FORM AND SUBMIT IT TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) NO LATER THAN 30 DAYS AFTER THE EACH QUARTER-END (MARCH, JUNE, SEPTEMBER, DECEMBER). YOU MUST REPORT: all transactions in which you have "Beneficial Ownership." "Beneficial 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. YOU NEED NOT REPORT: Transactions in your or your spouse's company-directed 401k plans, 529 plans, or accounts in which you do not have trading discretion, so long as the accounts themselves have been identified to the Compliance Department on Form C under #5. Also excluded from this report are: US Government Securities, commercial paper, certificates of deposit, repurchase agreements, banker's acceptance, and any other money market instruments, municipal bonds, and index options. NAME: _________________________________________________________________________ STATUS:[ ] ACCESS [ ] INVESTMENT FOR QUARTER:[ ] 1 [ ] 2 [ ] 3 [ ] 4 1. TRANSACTIONS (Please check one.) [ ] I have made no reportable transactions during this quarter. [ ] I have made reportable transactions during this quarter.* 2. STATEMENTS (Please check all that apply.) [ ] I have no reportable accounts and, as such, no statements to submit. [ ] Duplicate statements are sent directly to Compliance from the broker or dealer. [ ] I have provided photocopies of account statements. 3. NEW ACCOUNTS (Please check one.) [ ] I have not opened a new account during the quarter. [ ] I have opened a new account(s) during the quarter.** SIGNATURE: ______________________________________ DATE:________________________ * Such transactions should appear in statements submitted to Compliance. Please use the reverse side of this form to describe any transactions that do not appear on submitted statements ** Please submit the following information to Compliance: Name on Account, Institution Name, Account Number, and Date Account was Opened. - -------------------------------------------------------------------------------- 32 Form C ANNUAL RECERTIFICATION Code of Ethics, Policy Concerning Material Non-Public Information, & Personal Holdings PLEASE COMPLETE SECTIONS 1-3 OF THIS FORM AND SUBMIT IT TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) NO LATER THAN 30 DAYS AFTER THE YEAR-END. NAME: _________________________________________________________________________ STATUS: [ ] ACCESS [ ] INVESTMENT 1. 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 Compliance all transactions required to be reported under the Code. * INITIALS: ___________ * Please describe Code violations or instances of non-compliance on a separate attachment. 2. POLICY & PROCEDURES CONCERNING MATERIAL NON-PUBLIC INFORMATION (Please initial below.) 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: ___________ - -------------------------------------------------------------------------------- 33 3. PERSONAL HOLDINGS & EXEMPTIONS (Please check all that apply. Refer to pages 17-18 of the Code for additional clarification.) [ ] Neither I, nor any member of my Family/Household, have Beneficial Ownership of Investment Accounts or Personal Holdings of any Covered Securities or Open-ended Mutual Funds. [ ] I and/or a member of my Family/Household have Beneficial Ownership of Investment Accounts or Personal Holdings of Covered Securities and/or Open-ended Mutual Funds. (Please list all such accounts/holdings on a separate attachment.) [ ] I have indicated on my list of reported holdings any accounts in which transactions are exempt from the Code's Reporting Requirements. Transactions in the following types of accounts are exempt under Section D of Part III of the Code: 1) Company-directed, non-proprietary 401(k) plans in which you have a beneficial interest as long as the plans do not include the Columbia Acorn Funds, Wanger Advisors Trust Funds, Columbia Funds or Nation Funds 2) Investment accounts in which you have a beneficial interest but no investment discretion, influence or control 3) 529 Plans you participate in ALL INFORMATION PROVIDED IN THIS FORM C IS TRUE AND COMPLETE TO THE BEST OF MY KNOWLEDGE. SIGNATURE: _______________________________________ DATE: ___________________ - -------------------------------------------------------------------------------- 34 Form D COLUMBIA WANGER ASSET MANAGEMENT MULTI-APPROVAL FORM ATTENTION: TO ENSURE EFFICIENT PROCESSING, SUBMIT THE COMPLETED FORM VIA EMAIL TO: JOE LAPALM OR BRUCE LAUER.
- ------------------------------------------------------------------------------------------------------------------------------------ SECTION I: REQUIRED - COMPLETE OR CHECK ALL OF THESE REQUIRED FIELDS. - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ DATE NAME - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SECTION II: IPO, Hedge Fund or Private Placement Transaction Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 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 Request 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: _____________________________ MANAGER APPROVAL _____________________ - ------------------------------------------------------------------------------------------------------------------------------------ Compliance Approval: _______________________________________ - ------------------------------------------------------------------------------------------------------------------------------------
================================================================================ FOR COMPLIANCE PURPOSES ONLY: Date Compliance Received: _______ Compliance Officer Handling: _______ Date Compliance Responded: _______ Date Associate Notified: _______ Method of Reporting to Associate: _______ ================================================================================ Multi-Approval Form 1.1.05 - -------------------------------------------------------------------------------- 35 EX-99.P(2) 11 file011.txt CODE OF ETHICS COLUMBIA ACORN TRUST CODE OF ETHICS FOR NON-MANAGEMENT TRUSTEES (ADOPTED EFFECTIVE JUNE 15, 1996; AMENDED EFFECTIVE MAY 25, 1999, SEPTEMBER 29, 2000, MAY 23, 2001, MARCH 4, 2002, NOVEMBER 16, 2004 AND [JUNE 6, 2006]) The Investment Company Act and rules require that Columbia Acorn Trust ("Acorn" or the "Fund") 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 Acorn might take advantage of that knowledge for their own benefit. For that purpose, Acorn has adopted this Code of Ethics (the "Code") applicable to those members of Acorn's board of trustees who are not affiliated with Columbia Wanger Asset Management, L.P. ("WAM"), Acorn's investment adviser. Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to WAM's designated compliance officer, Acorn's chief compliance officer or counsel for the Fund. I. STATEMENT OF PRINCIPLE GENERAL PROHIBITIONS. The Investment Company Act and rules make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by the Fund to: a. employ any device, scheme, or artifice to defraud the Funds; b. make to the Funds any untrue statement of a material fact or omit to state to the Funds a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading; c. engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Funds; or d. engage in any manipulative practice with respect to the Funds. PERSONAL SECURITIES TRANSACTIONS. The Code regulates personal securities transactions as a part of the effort by the Fund to detect and prevent conduct that might violate the general prohibitions outlined above. A personal securities transaction is a transaction in a COVERED SECURITY held in any account over which the Non-Management Trustee (as defined below) has direct or indirect influence or control - a BENEFICIAL INTEREST. COVERED SECURITY is interpreted very broadly for this purpose, and includes any right to acquire any security (an option or warrant, for example). You have a BENEFICIAL INTEREST in a security in which you have, directly or indirectly, the opportunity to profit or share in any profit derived from a transaction in the security, or in which you have an indirect interest, including beneficial ownership by your spouse or minor children or other dependents living in your household, or your share of securities held by a partnership of which you are a general partner. Technically, the rules under section 16 of the Securities Exchange Act of 1934 will be applied to determine if you have a beneficial interest in a security (even if the security would not be within the scope of section 16). Examples of beneficial interest and a copy of Rule 16a-1(a), defining beneficial ownership, are attached as Appendix A. In any situation where the potential for conflict exists, transactions for the Fund must take precedence over any personal transaction. The Fund's Non-Management Trustees owe a duty to the Fund and its shareholders to conduct their personal securities transactions in a manner which does not interfere with the portfolio transactions of the Fund, take inappropriate advantage of their relationship with the Fund, or create any actual or potential conflict of interest between their interests and the interests of the Fund and its shareholders. Situations not specifically governed by this Code of Ethics will be resolved in light of this general principle. II. TO WHOM THE CODE'S RESTRICTIONS APPLY The Code applies to each board member who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act, including any board member who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act but whom the board has determined to treat as an "interested person" of the Fund (the "Non-Management Trustees"). The Non-Management Trustees are listed on Schedule A hereto. III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS A. NO TRANSACTIONS WITH THE FUNDS. No Non-Management Trustee shall knowingly sell to or purchase from the Fund any security or other property, except securities issued by the Fund. B. NO CONFLICTING TRANSACTIONS. No Non-Management Trustee shall purchase or sell any security in which such Non-Management Trustee has or would thereby acquire a beneficial interest which the person knows or has reason to believe is being purchased or sold or considered for purchase or sale by the Fund, until the Fund's transactions have been completed or consideration of such transactions has been abandoned. IV. COMPLIANCE PROCEDURES A. QUARTERLY REPORTING OF PERSONAL SECURITIES TRANSACTIONS. 1. Each Non-Management Trustee shall report to WAM's compliance officer, within ten days after the end of the calendar quarter in which a reportable transaction occurs, any personal securities transaction in which the Non-Management 2 Trustee, at the time of the transaction, knew, or in the ordinary course of fulfilling his or her duties as a trustee should have known, that on the day of the transaction or within 15 days before or after that day a purchase or sale of that security was made by or considered for the Fund. 2. Quarterly reports of personal securities transactions for Non-Management Trustees may be in any form (including copies of confirmations or monthly statements) but must include (i) the date of the transaction, the title and number of shares, and the principal amount of each security involved; (ii) the nature of the transaction (i.e., purchase, sale, gift, or other type of acquisition or disposition); (iii) the price at which the transaction was effected; (iv) the name of the broker, dealer, or bank with or through whom the transaction was effected; and (v) the name of the reporting person. B. MONITORING OF TRANSACTIONS. WAM's compliance officer will review the quarterly reports of personal securities transactions of the Fund's Non-Management Trustees. D. CERTIFICATION OF COMPLIANCE. Each Non-Management Trustee is required to certify annually that he or she has read and understands the Code and recognizes that he or she is subject to the Code. To accomplish this, the Secretary of the Fund shall annually distribute a copy of the Code and request certification. E. REVIEW BY THE FUND'S BOARD. The officers of the Fund shall prepare an annual report to the board that: 1. summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; 2. identifies any violations of the Code requiring significant remedial action during the past year; and 3. identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations. V. EXEMPT TRANSACTIONS The provisions of this Code are intended to restrict the personal investment activities of persons subject to the Code only to the extent necessary to accomplish the purposes of the Code. Therefore, the provisions of Section III (Restrictions on Personal Securities Transactions) and Section IV (Compliance Procedures) of this Code shall not apply to: A. Purchases or sales effected in any account over which the persons subject to this Code have no direct or indirect influence or control; B. Purchases or sales of: 1. U.S. government securities; 3 2. shares of open-end investment companies (mutual funds), including but not limited to shares of any series of Acorn or Wanger Advisors Trust; and 3. bank certificates of deposit or commercial paper. C. Purchases or sales over which neither the person subject to this Code nor the Fund has control; D. Purchases that are part of an automatic dividend reinvestment plan; E. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities to the extent such rights were acquired from such issuer, and sales of such rights so acquired; F. Purchases or sales in an account managed by an independent investment adviser with discretion where the Non-Management Trustee has no advance knowledge of the transactions before they had been executed; and G. Purchases or sales that receive the prior approval of the Fund's compliance officer because they are not inconsistent with this Code or the provisions of Rule 17j-1(a) under the Investment Company Act of 1940. A copy of Rule 17j-1 is attached as Appendix B. VI. CONSEQUENCES OF FAILURE TO COMPLY WITH THE CODE Compliance with this Code of Ethics is a condition of retention of positions with the Fund. The Fund's board of trustees shall determine what action is appropriate for any breach of the provisions of the Code by a Non-Management Trustee, which may include removal from the board. Reports filed pursuant to the Code will be maintained in confidence but will be reviewed by WAM or the Fund to verify compliance with the Code. Additional information may be required to clarify the nature of particular transactions. VII. RETENTION OF RECORDS WAM's designated compliance officer shall maintain the records listed below for a period of five years at the Fund's principal place of business in an easily accessible place: A. a list of all persons subject to the Code during the period; B. receipts signed by all persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it; C. a copy of each code of ethics that has been in effect at any time during the period; and D. a copy of each report filed pursuant to the Code and a record of any known violation and action taken as a result thereof during the period. 4 * * * * * Adopted effective 5/28/96 Amended effective 5/25/99 Amended effective 9/29/00 Amended effective 5/23/01 Amended effective 3/4/02 Amended effective 11/16/04 [Amended effective 6/6/06] 5 SCHEDULE A NON-MANAGEMENT TRUSTEES Margaret Eisen Jerome Kahn, Jr. Steven Kaplan David C. Kleinman Allan B. Muchin Robert E. Nason James Starr Ralph Wanger John A. Wing APPENDIX A EXAMPLES OF BENEFICIAL OWNERSHIP For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include: o securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); o securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); o securities held by you as trustee or co-trustee, where either you or any member of your immediate family (i.e., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust; o securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; o securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; o securities held by a personal holding company controlled by you alone or jointly with others; o securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or o securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. You will NOT be deemed to have beneficial ownership of securities in the following situations: o securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and o securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. APPENDIX A THESE EXAMPLES ARE NOT EXCLUSIVE. THERE ARE OTHER CIRCUMSTANCES IN WHICH YOU MAY BE DEEMED TO HAVE A BENEFICIAL INTEREST IN A SECURITY. ANY QUESTIONS ABOUT WHETHER YOU HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO WAM'S DESIGNATED COMPLIANCE OFFICER OR CHIEF OPERATING OFFICER. ATTACHMENT A COLUMBIA ACORN TRUST CODE OF ETHICS AFFIRMATION I affirm that I have received a copy of the Columbia Acorn Trust Code of Ethics for Non-Management Trustees (the "Code") and have read and understand it. I acknowledge that I am subject to the Code and will comply with the Code in all respects. Date: ________________ ____________________________________________ Signature EX-99.P(3) 12 file012.txt COLUMBIA MANAGEMENT CODE OF ETHICS - -------------------------------------------------------------------------------- COLUMBIA MANAGEMENT CODE OF ETHICS* EFFECTIVE JANUARY 1, 2006 - -------------------------------------------------------------------------------- COLUMBIA MANAGEMENT AFFILIATES: CMG INVESTMENT ADVISOR COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") INVESTMENT SERVICES GROUP ADVISORS BANC OF AMERICA INVESTMENT ADVISORS, INC. (BAIA") BANK OF AMERICA CAPITAL ADVISORS, LLC ("BACA") BACAP ALTERNATIVE ADVISORS, INC. CMG DISTRIBUTORS COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ("CMDI") COLUMBIA MANAGEMENT SERVICES, INC. ("CMSI") * This Code of Ethics is for all employees and officers of the direct or indirect affliliates listed above of Columbia Management and employees of Bank of America who receive official notice under this Code of Ethics from Compliance. Employees of Bank of America subject to this Code may include support partners of Columbia Management (such as Legal, Risk, Compliance, and Technology groups) or other divisions that are determined to be subject to this Code. - --------------------------------------------------------------------------------
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. 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 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, 2006 OVERVIEW This is the Code of Ethics for: o All employees and officers of the direct or indirect affiliates of Columbia Management Group (CMG) listed at the front of this Code and employees of Bank of America who receive official notice under this Code of Ethics from Compliance. o The Code is intended to satisfy the requirements of Rule 204A-1 and Rule 17j-1 under the Investment Advisers Act of 1940. In addition, this Code is intended to satisfy certain NASD requirements for registered personnel. 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, transactions, and accounts so they can be reviewed for conflicts with the investment activities of CMG CLIENT ACCOUNTS (Part III) and compliance with this Code. Failure to comply with this Code may result in disciplinary action, including termination of employment. - -------------------------------------------------------------------------------- 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. 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. "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 "CCO" means CMG's Chief Compliance Officer or his/her designee. 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 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. - -------------------------------------------------------------------------------- 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 defined as money market funds or other funds designed to provide short term liquidity. 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 (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. - -------------------------------------------------------------------------------- 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 or CLIENT. 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, 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 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 conducted in such a manner as to be consistent with the code of ethics and to avoid any actual or potential conflict of interests.. 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. The Code of Ethics Oversight Committee 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. The Code of Ethics Oversight Committee may consult with the Legal Department prior to granting any such waivers. 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 are required to read and comply 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 required to read and comply with the Global Wealth and Investment Management ("Global WIM") Associate Designated Brokerage Account Policy. Unless an exception has been granted, that policy requires Employees to maintain their current and any new Associate Accounts - -------------------------------------------------------------------------------- 5 with Banc of America Investment Services, Inc. (BAI) or Merrill Lynch. The policy is available on the intranet links portion of Global WIM's intranet homepage. D. NONPUBLIC INFORMATION Employees are prohibited from disclosing to persons outside the firm any material nonpublic information about any client, the securities investments made by the firm on behalf of a client, information about contemplated securities transactions, or information regarding the firm's trading strategies, except as required to effectuate securities transactions on behalf of a client or for other legitimate business purposes. Disclosure of nonpublic information is a violation of CMG's conflicts of interest policies and a breach of fiduciary duty. 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 Linda Wondrack, CMG's Chief Compliance Officer, at 1.617.772.3543 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), in which an EMPLOYEE has BENEFICIAL OWNERSHIP must be approved using the appropriate pre-clearance procedures. Pre-clearance procedures are available on the Columbia Management intranet homepage. Except in rare cases of hardship, gifting of securities or other unusual circumstances no such redemption or exchange will be approved unless such investment has been held for at least 60 calendar days. All such exceptions require advance approval from the CCO. 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: Late trading of mutual funds is illegal. No Employee shall 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. Late trading is a violation of CMG's conflicts of interest policies and a breach of fiduciary duty. 4. MARKET TIMING PROHIBITION: No Employee shall engage in mutual fund market timing activities. CMG Management believes that the interests of a mutual fund's long-term shareholders and the ability of a mutual fund to manage its investments may be adversely affected when fund shares are repeatedly bought and sold (or exchanged) by any individual or entity within short periods of time to take advantage of short-term differentials in the net asset values of such funds. This practice, known as "market timing," can occur in several ways: either in direct purchases and sales of mutual fund shares, through rapid reallocation of funds held in for 401(k) or similarly structured retirement or other accounts invested in mutual fund assets, or through the rapid reallocation of funds held in variable annuity and variable life policies invested in mutual fund assets. Mutual fund market timing is a violation of CMG's conflict of interest policies and a breach of fiduciary duty. C. RESTRICTIONS APPLICABLE TO ALL EMPLOYEES WITH RESPECT TO TRANSACTIONS IN BANK OF AMERICA'S RETIREMENT PLANS As a reminder all Employees must comply with the Policy on Excessive Trading and Market Timing in the Bank of America Retirement Plans ("Retirement Plan Policy") located in the Retirement overview section of Personnel Online, under the Benefits tab. The Retirement Plan Policy generally limits the frequency with which an associate can move dollars in and out of any retirement plan investment choice to once every 30 days. Associates who violate this policy will be restricted in their ability to make future fund exchanges and may be subject to disciplinary action - up to and including termination of employment. In addition to the Retirement Plan Policy, all employees participating in the Plans remain subject to the particular restrictions on trading of mutual fund shares contained in the prospectuses of mutual funds offered by the Plans, including but not limited to Columbia Funds. 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 CMG 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 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. - -------------------------------------------------------------------------------- 8 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. Pre-clearance procedures are described at Columbia Management'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 the CCO. (NOTE: REGISTERED PERSONNEL are PROHIBITED from investing in IPOs.) 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 CMG 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 Peron 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 CMG 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 investors in the IPO company; 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 CMG 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, that: - -------------------------------------------------------------------------------- 9 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 CCO, in advance of a trade and will generally be granted only in rare cases of hardship, gifting of securities or other unusual circumstances 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 exceptions 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 1. 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. 2. MANGER PRE-APPROVAL REQUIRED FOR IPOS AND PRIVATE PLACEMENTS All Investment Persons are required to obtain written manager pre-approval for personal investments in INITIAL PUBLIC OFFERINGS (IPOS) AND PRIVATE PLACEMENTS. "Manager pre- - -------------------------------------------------------------------------------- 10 approval" is approval by an investment person's immediate manager or their designee. After obtaining manger pre-approval, Investment Persons must obtain pre-approval from the CCO. The Request Form and instructions are available on Columbia Management's intranet site under the Compliance tab. 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). 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 - -------------------------------------------------------------------------------- 11 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: 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 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). 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. Copies of the Code and any amendments to the Code are required to be provided to all Employees. All Employees are required to provide online acknowledgment of their receipt of the Code and any amendments. 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 ownership interest (including those of your family members or your household) which may hold shares of any open-end mutual funds, including accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities/life, etc. HOLDINGS of any open-end mutual fund shares in any of the above mentioned accounts, including funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia 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 report of their investment accounts (including any new accounts opened during the quarter) and transactions in Open-end mutual funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds or Nations Funds Families. These requirements include all investment accounts 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 (but not limited to) accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities/life, 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 holdings of any Open-end mutual fund, including open-end mutual funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. These requirements include all - -------------------------------------------------------------------------------- 13 investment accounts 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 (but not limited to) accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities/life, etc. 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. All duplicate statements and confirmations should be sent to the following address: BANK OF AMERICA COMPLIANCE RISK MANAGEMENT PERSONAL TRADING DEPARTMENT NC1-002-32-27 101 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/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, and Columbia Funds Families o Investment account and holdings of COVERED SECURITIES information that is supplied to Compliance Risk Management shall not be more than 45 days old. 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(including investment accounts opened during the quarter) and transactions in COVERED SECURITIES and OPEN-END MUTUAL FUNDS during the quarter, including OPEN-END MUTUAL FUNDS that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia 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. 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 - -------------------------------------------------------------------------------- 14 in the Columbia Acorn, Wanger Advisors Trust, and Columbia 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. Investment account and holdings of COVERED SECURITIES information that is supplied to Compliance Risk Management shall not be more than 45 days old. 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. All duplicate statements and confirmations should be sent to the following address: BANK OF AMERICA COMPLIANCE RISK MANAGEMENT PERSONAL TRADING DEPARTMENT NC1-002-32-27 101 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 Families of Funds. If the non-proprietary 401(k) plan holdings are in a fund from the Columbia Acorn, Wanger Advisors Trust, or Columbia 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 o Access persons on leave who do not have home access will be exempt from the above reporting requirements while on leave. Access persons on leave with home access will be responsible for the above reporting. - -------------------------------------------------------------------------------- NOTE: The exception of any non-proprietary 401(k) plan applies to company-directed 401(k) plans, but does not apply to self-directed 401(k) plans. If you have investments in plans that are self-directed, you are subject to the pre-clearing and reporting requirements of the Code of Ethics. Self-directed 401(k) plans offers the ability to direct stock investments, while company-directed 401(k) plans usually offer a limited number of investment options consisting of mutual funds in which one directs their investments. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 15 at least annually as required by Rule 17j-1 under the Investment Company Act of 1940 and more frequently as requested by the board. G. QUESTIONS Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to Associate Investment Monitoring (AIM) Department at (704) 388-3300 or via email to Corporate Compliance, PST. - -------------------------------------------------------------------------------- 16 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. - -------------------------------------------------------------------------------- 17 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. - -------------------------------------------------------------------------------- 18 Appendix B Exceptions to the Short-Term Trading Ban Exceptions to the short-term trading ban on COVERED SECURITIES may be requested in advance to the CCO, and will generally only be granted in rare cases of hardship, gifting of securities or other unusual circumstances 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. o An irrevocable gift of securities provided no abuse is intended. - -------------------------------------------------------------------------------- 19 Appendix C Code of Ethics Oversight Committee Sanctions Schedule for failure to comply with the Code The CODE OF ETHICS OVERSIGHT 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 impose sanctions consistent with the Code's Sanction Guidelines. The Committee will be the final arbiter in determining sanctions imposed under this Code. 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 - ------ ---------------------------------- ----------------------------------------------------------------------------- 1 Trading without proper 1ST OFFENSE: Written Warning pre-clearance (Covered 2ND OFFENSE*: Written Reprimand and/or Monetary Penalty Securities and Mutual Funds) 3RD OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 2 Failure to file an accurate 1ST OFFENSE: Written Warning required report (Initial, 2ND OFFENSE*: Written Reprimand and/or Monetary Penalty Quarterly and Annual Reports) 3RD OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 within the required time period days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 3 Trading after being denied 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty approval 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 4 Failure to timely report a 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty personal investment account, 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30- whether existing or newly 90 days and/or Suspension / Termination established. - ------ ---------------------------------- ----------------------------------------------------------------------------- 5 Purchasing an Initial Public 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty Offering (IPO), Hedge Fund or 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 Private Placement without days and/or Suspension / Termination receiving pre-clearance - ------ ---------------------------------- ----------------------------------------------------------------------------- 6 Trading which violates the 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty same-day/open order or 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 restricted list restriction days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 7 Trading within the 14 calendar 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty day blackout period 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 8 Profiting from short-term trading 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 9 Trading Mutual Funds in 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty violation of the 60 day 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 restriction days and/or Suspension / Termination - ------ ---------------------------------- -----------------------------------------------------------------------------
* Requires review by the Code of Ethics Oversight Committee. The following schedule details the monetary penalties that may be applied for each offense. Monetary penalties may include disgorgement of profits when applicable. o Non-Access and Access Persons $100-$1,000 o Administrative Investment Persons $100-$1,000 o Investment Persons $500-$2,500 o Senior Investment Persons $2,500-$5,000 o Managing Directors $2,500-$5,000 - -------------------------------------------------------------------------------- 20 -----END PRIVACY-ENHANCED MESSAGE-----