-----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, ObhFtWSeRTNWgrKX5yPL02cM7S1wpbAWgsgBR8QpsGrFwuSy7yzSbvOYEiz261K8 O73qFkDZh76WSgqXeW4Chw== 0000950131-01-501016.txt : 20010502 0000950131-01-501016.hdr.sgml : 20010502 ACCESSION NUMBER: 0000950131-01-501016 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20010501 EFFECTIVENESS DATE: 20010501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY ACORN TRUST CENTRAL INDEX KEY: 0000002110 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-34223 FILM NUMBER: 1617746 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-01829 FILM NUMBER: 1617747 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: ACORN INVESTMENT TRUST DATE OF NAME CHANGE: 19940204 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 485BPOS 1 d485bpos.txt LIBERTY ACORN TRUST As filed with the Securities and Exchange Commission on May 1, 2001 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. 70 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 45 ______________________________ LIBERTY ACORN TRUST (previously Acorn Investment Trust) (Registrant) 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 ------------------------------ Ralph Wanger Cameron S. Avery Liberty Acorn Trust Bell, Boyd & Lloyd LLC 227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300 Chicago, Illinois 60606 Chicago, Illinois 60602 (Agents for service) ______________________________ Amending Parts A, B, and C, and filing exhibits ______________________________ It is proposed that this filing will become effective: [X] immediately upon filing pursuant to rule 485(b) [ ] on ___________ 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). -------------------------------------------------- LIBERTY ACORN INTERNATIONAL Prospectus, May 1, 2001 -------------------------------------------------- Class A, B and C Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured May Lose Value No Bank Guarantee - ----------------------------------------------------------- T A B L E O F C O N T E N T S
LIBERTY ACORN INTERNATIONAL 2 - ----------------------------------------------------------- Investment Goal....................................... 2 Principal Investment Strategies....................... 2 Principal Investment Risks............................ 2 Performance History................................... 5 Your Expenses......................................... 7 YOUR ACCOUNT 8 - ----------------------------------------------------------- How to Buy Shares..................................... 8 Sales Charges......................................... 9 How to Exchange Shares................................ 14 How to Sell Shares.................................... 14 Fund Policy on Trading of Fund Shares................. 15 Distribution and Service Fees......................... 16 Other Information About Your Account.................. 16 MANAGING THE FUND 19 - ----------------------------------------------------------- Investment Advisor.................................... 19 Portfolio Managers.................................... 19 OTHER INVESTMENT STRATEGIES AND RISKS 20 - ----------------------------------------------------------- The Information Edge.................................. 20 Stock Strength Comes First............................ 21 Derivative Strategies................................. 21 Temporary Defensive Strategies........................ 21 FINANCIAL HIGHLIGHTS 22 - -----------------------------------------------------------
Liberty Acorn International INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn International seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn International invests primarily 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 purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that smaller companies - particularly outside the U.S. - that are not as well known by financial analysts may offer higher return potential than the stocks of larger companies. Liberty Acorn International typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn International is an international fund and invests the majority (under normal market conditions, at least 75%) of its total assets in the stocks of foreign companies based in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. ___ 2 Equity risk 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 equity market tends to move in cycles and 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than domestic securities, which means that the Fund may 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. 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. ___ 3 Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. 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. ___ 4 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year. They include the effects of Class Z expenses. Class A, Class B and Class C shares are subject to sales charges, 12b-1 fees and different expenses that are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. Average annual total returns are measures of the Fund's Class Z performance over the past one-year, five-year and life of the Fund periods. They include the effects of Class Z expenses. The table shows for each class the Class Z performance restated to reflect the effect of sales charges of each class. Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. EMI World ex-U.S. is Salomon Smith Barney's index of the bottom 20% of institutionally investable capital of countries, selected by Salomon and excluding the U.S. The EMI Global ex-U.S. is Salomon Smith Barney's index of the bottom 20% of institutionally investable capital of developed and emerging countries as selected by Salomon, excluding the U.S. The EMI Global ex-U.S. is rebalanced once a year in June. Beginning in 2001, the Fund's broad-based securities market index was changed from the EMI World ex-U.S. to the EMI Global ex-U.S., which has a component of emerging countries. The adviser belives the EMI Global ex-U.S. index better aligns with how the Fund invests. Unlike the Fund, indices are not investments, do not incur fees or expenses, are not subject to taxes, and are not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- Because Class A, Class B and Class C shares have not been offered for a full calendar year, the information provided in the bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. Class Z shares are offered to certain investors through separate prospectuses. The performance table following the bar chart shows how the Fund's average annual returns for (1) the Class Z shares and (2) the Class Z shares, restated to reflect the sales charges of the Class A, Class B and Class C shares, respectively, compare with those of broad measures of market performance for one year, five years and life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's Class Z performance. All returns include the reinvestment of dividends and distributions. In this prospectus, after-tax returns are shown only for Class Z shares and after-tax returns for Class A, Class B and Class C shares will vary. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z)/(1)/ - -------------------------------------------------------------------------------- [BAR CHART] Year Return ---- ------ 1993 49.11% 1994 -3.80% 1995 8.93% 1996 20.65% 1997 .19% 1998 15.43% 1999 79.19% 2000 -20.02% For period shown in bar chart: Best quarter: 4th quarter 1999, +41.63% Worst quarter: 3rd quarter 1998,-16.05% The Fund's year-to-date total return through March 31, 2001 was -12.33% (1) Class Z shares are not offered through this prospectus, but Class A, Class B and Class C shares would have substantially similar annual returns because the shares are invested in the same portfolio of securities and these returns differ only to the extent that the classes do not have the same expenses. ___ 5 - ------------------------------------------------------------------------------- Average Annual Total Returns -for periods ended December 31, 2000/(2)/ - -------------------------------------------------------------------------------
Life of the Inception Date 1 Year 5 Years Fund Class A 10/16/00 -24.65% 13.51% 14.86% - ----------------------------------------------------------------------------------------- Class B 10/16/00 -23.52% 14.60% 15.67% - ----------------------------------------------------------------------------------------- Class C 10/16/00 -20.82% 14.83% 15.67% - ----------------------------------------------------------------------------------------- Class Z 9/23/92 Return Before Taxes -20.02% 14.87% 15.69% - ----------------------------------------------------------------------------------------- Return After Taxes on Distributions -22.97% 13.08% 14.57% - ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -9.72% 12.10% 13.37% - ----------------------------------------------------------------------------------------- EAFE n/a -14.17% 7.13% 9.73% - ----------------------------------------------------------------------------------------- EMI (World ex-U.S.) -10.31% 3.83% 6.87% - ----------------------------------------------------------------------------------------- EMI (Global ex-U.S.) n/a -12.58% 6.00% 5.96% - -----------------------------------------------------------------------------------------
(2) Class A, Class B and Class C performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to the inception of the newer classes of shares which were initially offered on October 16, 2000. Class Z returns are not restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses were reflected, the returns for prior to the inception of the newer classes of shares would be lower. Class Z shares were initially offered on September 23, 1992. ___ 6 UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Liberty Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, 12b-1 fees and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions . assumes Class B shares convert to Class A shares after eight years 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. Shareholder Fees/(4)/ (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/(5)/ 5.00 1.00 - ---------------------------------------------------------------------------------------- Redemption fee (6) (6) (6)
(4) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (5) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (6) 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/(7)/(%) .79% .79% .79% - ---------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) .35% 1.00% 1.00% - ---------------------------------------------------------------------------------------- Other expenses (%) .29% .29% .29% - ---------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.43% 2.08% 2.08%
(7) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years Class A: $712 $1,001 $1,312 $2,190 - -------------------------------------------------------------------------------------- Class B: did not sell your shares $211 $ 652 $1,119 $2,244 sold all your shares at the end of the period $711 $ 952 $1,319 $2,244 - -------------------------------------------------------------------------------------- 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
___ 7 Your Account INVESTMENT MINIMUMS Initial Investment........................................... $1,000 Subsequent Investments....................................... $ 50 Automatic Investment Plan*................................... $ 50 Retirement Plans*............................................ $ 25 * The initial investment minimum of $1,000 is waived on this plan. 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. HOW TO BUY SHARES - -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that you placed your order with your brokerage firm or your payment has been received and your application is complete, including all necessary signatures. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares by exchanging shares you own in one fund for shares of the same class of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer money from your bank account to your Fund account by calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in another fund, call 1-800-345-6611. ___ 8 CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor firm does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. SALES CHARGES - -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, these sales charges are waived, as described below and in the Statement of Additional Information. Class A shares Your purchases of Class A shares generally are 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. A portion of the sales charge is the commission paid to the financial advisor firm on the sale of Class A shares. The sales charge you pay on additional investments is based on the total amount of your purchase and the current value of your account. 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 As a % of price the public As a % retained by offering of your financial Amount of purchase price investment advisor firm 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
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month following each purchase. The CDSC does not apply to retirement plans purchasing shares through a fee-based program. ___ 9 For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows: Purchases Over $1 Million Amount purchased Commission % First $3 million 1.00 - -------------------------------------------- ----------------------------------- $3 million to less than $5 million 0.80 - -------------------------------------------- ----------------------------------- $5 million to less than $25 million 0.50 - -------------------------------------------- ----------------------------------- $25 million or more 0.25 The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding. For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million. ____ 10 UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the month-end of the month in which the purchase is made. Shares you purchase with reinvested dividends or capital gains are not subject to a CDSC. When you place an order to sell shares, your Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest. This policy helps reduce and possibly eliminate the potential impact of the CDSC. Reduced Sales Charges for Larger Investments There are two ways for you to pay a lower sales charge when purchasing Class A shares. The first is through Rights of Accumulation. If the combined value of the Fund accounts maintained by you, your spouse or your minor children reaches a discount level (according to the chart on the previous page), your next purchase will receive the lower sales charge. The second is by signing a Statement of Intent within 90 days of your purchase. By doing so, you would be able to pay the lower sales charge on all purchases by agreeing to invest a total of at least $50,000 within 13 months. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. In addition, certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a Fund share excluding any sales charges. See the Statement of Additional Information for a description of these situations. Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to the completion of the periods shown in the charts below. The CDSC generally declines each year and eventually disappears over time. The distributor pays the financial advisor firm an up-front commission on sales of Class B shares as depicted in the charts below. Purchases of less than $250,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 5.00 - -------------------------------------------------------------------------------- Through second year 4.00 - -------------------------------------------------------------------------------- Through third year 3.00 - -------------------------------------------------------------------------------- Through fourth year 3.00 - -------------------------------------------------------------------------------- Through fifth year 2.00 - -------------------------------------------------------------------------------- Through sixth year 1.00 - -------------------------------------------------------------------------------- Longer than six years None Commission to financial advisors is 5.00%. Automatic conversion to Class A shares is eight years after purchase. ___ 11 You can pay a lower CDSC and reduce the holding period when making purchases of Class B shares through a financial advisor firm which participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisor firms are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating firms, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating firms, Rights of Accumulation apply, so that if the combined value of Fund accounts maintained by you, your spouse or your minor children is at or above a discount level, your next purchase will receive the lower CDSC and the applicable reduced holding period. Purchases of $250,000 to less than $500,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 - -------------------------------------------------------------------------------- Longer than three years 0.00 Commission to financial advisors is 2.50%. Automatic conversion to Class A shares is four years after purchase. Purchases of $500,000 to less than $1 million: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Commission to financial advisors is 1.75%. Automatic conversion to Class A shares is three years after purchase. ____ 12 If you exchange into a Fund participating in the Class B share discount program or transfer your Fund account from a financial advisor which does not participate in the program to one who does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which cause the exchanged or transferred account to exceed the applicable discount level will receive the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a fund or financial advisor which does not, the exchanged or transferred shares will retain the pre-existing CDSC but all additional purchases of Class B shares will be in accordance with the higher CDSC and longer holding period of the non-participating fund or financial advisor. Class C shares Similar to Class B 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 the financial advisor firm an up-front commission of 1.00% on sales of Class C shares. Class C Sales Charges Years after purchase % deducted when shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 ____ 13 HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund distributed by Liberty Funds Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you exchanged. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, (ii) you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. ____ 14 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into the same share class of another Liberty fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- By mail You may send a signed letter of instruction or stock power form along with any share certificates to be sold to the address below. In your letter of instruction, note your Fund's name, share class, account number, and the dollar value or number of shares you wish to sell. All account owners must sign the letter, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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 Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. ___ 15 DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- The Fund has adopted a plan under Rule 12b-1 that permits it to pay the Fund's distributor, marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees may reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after a certain number of years, eliminating a portion of the distribution fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account; Sales Charge" for the conversion schedule applicable to Class B shares. 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 (typically Monday through Friday). 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's firm, the firm must receive your order by the close of trading on the NYSE to receive that day's price. The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of these securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. ___ 16 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Fund's transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class B and C shares. Certificates will be issued for Class A shares only if requested. If you decide to hold share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the distributor. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 17 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. ___ 18 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .79% of the Fund's average daily net assets. Liberty WAM also receives an administrative services fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Leah J. Zell Lead portfolio manager Leah Zell is a vice president of Liberty Acorn Trust, and was a principal of WAM before its acquisition by Liberty. She has managed Liberty Acorn International since its inception in 1992, and was named lead portfolio manager in 1997. She has worked with Liberty Acorn Fund's international securities since 1984. Ms. Zell also manages the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. She is a CFA and earned her BA and PhD from Harvard University. ___ 19 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn International-Principal Investment Strategies" and "Liberty Acorn International-Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund 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. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, likely produce superior flexibility to pursue it identifies a price performance that is strategic objectives and that it believes would sustainable over time. is essential to also make the stock a maintaining a competitive good value. advantage. - --------------------------------------------------------------------------------------
___ 20 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 financial performance. Information is shown for the Fund's fiscal year since inception of Class A, Class B and Class C shares. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited and has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn International
Selected data for a share of each class outstanding throughout each period For the Period Ended 12/31/2000 (a) Class A Class B Class C Net Asset Value, Beginning of Period $ 28.67 $28.67 $28.67 ----------------------------------------------------------------------------------------------- Income from Investment Operations Net investment income (b) .02 (.01) (.01) Net realized and unrealized gain (1.26) (1.26) (1.26) ----------------------------------------------------------------------------------------------- Total from investment operations (1.24) (1.27) (1.27) ----------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders From net investment income .00 .00 .00 From net realized gains (3.59) (3.59) (3.59) ----------------------------------------------------------------------------------------------- Total distributions declared to shareholders (3.59) (3.59) (3.59) ----------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 23.84 $23.81 $23.81 ----------------------------------------------------------------------------------------------- Total Return (c) (d) (4.85%) (4.97%) (4.97%) ----------------------------------------------------------------------------------------------- Ratios to Average Net Assets Expenses (e) (f) 1.59% 2.24% 2.24% Net investment income (e) (f) .40% (.25%) (.25%) Portfolio Turnover 63% 63% 63% Net assets at end of period (000's) $10,323 $5,675 $3,965
(a) Class A, Class B and Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. ___ 22 Notes _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ ___ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn International (formerly Acorn International) - -------------------------------------------------------------------------------- [LETTERHEAD OF LIBERTY FUNDS] ------------------------------ LIBERTY ACORN FUND Prospectus, May 1, 2001 ------------------------------ Class A, B and C Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured May Lose Value No Bank Guarantee
- -------------------------------------------------------------------------------------------------------------------------- T A B L E O F C O N T E N T S LIBERTY ACORN FUND 2 MANAGING THE FUND 19 - -------------------------------------------------------- ----------------------------------------------------------- Investment Goal..................................... 2 Investment Advisor..................................... 19 Principal Investment Strategies..................... 2 Portfolio Managers..................................... 19 Principal Investment Risks.......................... 2 Performance History................................. 5 OTHER INVESTMENT Your Expenses....................................... 7 STRATEGIES AND RISKS 20 ----------------------------------------------------------- YOUR ACCOUNT 8 The Information Edge................................... 20 - -------------------------------------------------------- Stock Strength Comes First............................. 21 How to Buy Shares................................... 8 Derivative Strategies.................................. 21 Sales Charges....................................... 9 Temporary Defensive Strategies......................... 21 How to Exchange Shares.............................. 14 How to Sell Shares.................................. 14 FINANCIAL HIGHLIGHTS 22 Fund Policy on Trading Fund of Shares............... 15 ----------------------------------------------------------- Distribution and Service Fees....................... 16 Other Information About Your Account................ 16
Liberty Acorn Fund INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Fund invests primarily in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $2 billion at the time of 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. Liberty Acorn Fund typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. ___ 2 Equity risk 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 equity market tends to move in cycles and 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than domestic securities, which means that the Fund may 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. 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. ___ 3 Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. 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. ___ 4 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 Class Z expenses. Class A, Class B and Class C shares are subject to sales charges, 12b-1 fees and different expenses that are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. Average annual total returns are measures of the Fund's Class Z performance over the past one-year, five-year and ten-year periods. They include the effects of Class Z expenses. The table shows for each class the Class Z performance restated to reflect the effect of sales charges of each class. The Fund's returns are compared to the S&P 500 Index and the Russell 2000 Index. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Russell 2000 Index is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. Unlike the Fund, indices are not investments, do not incur fees or expenses, are not subject to taxes, and are not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- Because Class A, Class B and Class C shares have not been offered for a full calendar year, the information provided in the bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. Class Z shares are offered to certain investors through separate prospectuses. The performance table following the bar chart shows how the Fund's average annual returns for (1) the Class Z shares and (2) the Class Z shares, restated to reflect the sales charges of the Class A, Class B and Class C shares, respectively, 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 the changes in the Fund's Class Z performance. All returns include the reinvestment of dividends and distributions. In this prospectus, after-tax returns are shown only for Class Z shares and after-tax returns for Class A, Class B and Class C shares will vary. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns (Class Z)/(1)/
Year Return - ---- ------ 1991 47.35% 1992 24.23% 1993 32.32% 1994 -7.45% 1995 20.80% 1996 22.55% 1997 24.98% 1998 6.02% 1999 33.38% 2000 10.06%
For period shown in bar chart: Best quarter: 4th quarter 1999, +21.94% Worst quarter: 3rd quarter 1998, -19.51% The Fund's year-to-date total return through March 31, 2001 was -5.17% (1) Class Z shares are not offered through this prospectus, but Class A, Class B and Class C shares would have substantially similar annual returns because the shares are invested in the same portfolio of securities and these returns differ only to the extent that the classes do not have the same expenses. 5 Average Annual Total Returns -- for periods ended December 31, 2000/(2)/
Inception Date 1 Year 5 Years 10 Years Class A 10/16/00 3.62% 17.55% 19.78% ----------------------------------------------------------------------------------------- Class B 10/16/00 5.18% 18.72% 20.47% ----------------------------------------------------------------------------------------- Class C 10/16/00 8.89% 18.92% 20.47% ----------------------------------------------------------------------------------------- Class Z 6/10/70 Return Before Taxes 10.06% 18.97% 20.50% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 6.24% 15.70% 17.95% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 8.90% 15.00% 17.05% ----------------------------------------------------------------------------------------- S&P 500 n/a -9.10% 18.33% 17.46% ----------------------------------------------------------------------------------------- Russell 2000 n/a -3.02% 10.31% 15.53% -----------------------------------------------------------------------------------------
(2) Class A, Class B and Class C performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to the inception of the newer classes of shares which were initially offered on October 16, 2000. Class Z returns are not restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses were reflected, the returns for prior to the inception of the newer classes of shares would be lower. Class Z shares were initially offered on June 10, 1970. ___ 6 UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Liberty Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, 12b-1 fees and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions . assumes Class B shares convert to Class A shares after eight years 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. - -------------------------------------------------------------------------------- Shareholder Fees/(3)/ (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/(4)/ 5.00 1.00 - --------------------------------------------------------------------------------------- Redemption fee (5) (5) (5)
(3) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (4) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (5) 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/(6)/(%) .68% .68% .68% - ------------------------------------------------------------------------------------ Distribution and service (12b-1) fees (%) .35% 1.00% 1.00% - ------------------------------------------------------------------------------------ Other expenses (%) .29% .29% .29% - ------------------------------------------------------------------------------------ Total annual fund operating expenses (%) 1.32% 1.97% 1.97%
(6) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." - -------------------------------------------------------------------------------- Example Expenses (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 $200 $618 $1,062 $2,128 sold all your shares at the end of the period $700 $918 $1,262 $2,128 - ------------------------------------------------------------------------------------ Class C: did not sell your shares $200 $618 $1,062 $2,296 sold all your shares at the end of the period $300 $618 $1,062 $2,296
___ 7 Your Account INVESTMENT MINIMUMS Initial Investment.....................$1,000 Subsequent Investments....................$50 Automatic Investment Plan*................$50 Retirement Plans*.........................$25 * The initial investment minimum of $1,000 is waived on this plan. 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. HOW TO BUY SHARES - -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that you placed your order with your brokerage firm or your payment has been received and your application is complete, including all necessary signatures. - -------------------------------------------------------------------------------- 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares by exchanging shares you own in one fund for shares of the same class of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer money from your bank account to your Fund account by calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in another fund, call 1-800-345-6611. ___ 8 CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor firm does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. Sales Charges - -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, these sales charges are waived, as described below and in the Statement of Additional Information. Class A shares Your purchases of Class A shares generally are 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. A portion of the sales charge is the commission paid to the financial advisor firm on the sale of Class A shares. The sales charge you pay on additional investments is based on the total amount of your purchase and the current value of your account. 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 As a % of price the public As a % retained by offering of your financial Amount of purchase price investment advisor firm 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
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month following each purchase. The CDSC does not apply to retirement plans purchasing shares through a fee-based program. ___ 9 For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows: Purchases Over $1 Million Amount purchased Commission % First $3 million 1.00 - -------------------------------------------------------------------------------- $3 million to less than $5 million 0.80 - -------------------------------------------------------------------------------- $5 million to less than $25 million 0.50 - -------------------------------------------------------------------------------- $25 million or more 0.25 The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding. For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million. ___ 10 UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the month-end of the month in which the purchase is made. Shares you purchase with reinvested dividends or capital gains are not subject to a CDSC. When you place an order to sell shares, your Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest. This policy helps reduce and possibly eliminate the potential impact of the CDSC. Reduced Sales Charges for Larger Investments There are two ways for you to pay a lower sales charge when purchasing Class A shares. The first is through Rights of Accumulation. If the combined value of the Fund accounts maintained by you, your spouse or your minor children reaches a discount level (according to the chart on the previous page), your next purchase will receive the lower sales charge. The second is by signing a Statement of Intent within 90 days of your purchase. By doing so, you would be able to pay the lower sales charge on all purchases by agreeing to invest a total of at least $50,000 within 13 months. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. In addition, certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a Fund share excluding any sales charges. See the Statement of Additional Information for a description of these situations. Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to the completion of the periods shown in the charts below. The CDSC generally declines each year and eventually disappears over time. The distributor pays the financial advisor firm an up-front commission on sales of Class B shares as depicted in the charts below. Purchases of less than $250,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 5.00 - -------------------------------------------------------------------------------- Through second year 4.00 - -------------------------------------------------------------------------------- Through third year 3.00 - -------------------------------------------------------------------------------- Through fourth year 3.00 - -------------------------------------------------------------------------------- Through fifth year 2.00 - -------------------------------------------------------------------------------- Through sixth year 1.00 - -------------------------------------------------------------------------------- Longer than six years None Commission to financial advisors is 5.00%. Automatic conversion to Class A shares is eight years after purchase. ___ 11 You can pay a lower CDSC and reduce the holding period when making purchases of Class B shares through a financial advisor firm which participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisor firms are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating firms, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating firms, Rights of Accumulation apply, so that if the combined value of Fund accounts maintained by you, your spouse or your minor children is at or above a discount level, your next purchase will receive the lower CDSC and the applicable reduced holding period. Purchases of $250,000 to less than $500,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 ------------------------------------------------------------------------------ Through second year 2.00 ------------------------------------------------------------------------------ Through third year 1.00 ------------------------------------------------------------------------------ Longer than three years 0.00 Commission to financial advisors is 2.50%. Automatic conversion to Class A shares is four years after purchase. Purchases of $500,000 to less than $1 million: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 ------------------------------------------------------------------------------ Through second year 2.00 ------------------------------------------------------------------------------ Through third year 1.00 Commission to financial advisors is 1.75%. Automatic conversion to Class A shares is three years after purchase. ___ 12 If you exchange into a Fund participating in the Class B share discount program or transfer your Fund account from a financial advisor which does not participate in the program to one who does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which cause the exchanged or transferred account to exceed the applicable discount level will receive the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a fund or financial advisor which does not, the exchanged or transferred shares will retain the pre-existing CDSC but all additional purchases of Class B shares will be in accordance with the higher CDSC and longer holding period of the non-participating fund or financial advisor. Class C shares Similar to Class B 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 the financial advisor firm an up-front commission of 1.00% on sales of Class C shares. Class C Sales Charges Years after purchase % deducted when shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 ___ 13 HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund distributed by Liberty Funds Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you exchanged. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, (ii) you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. ___ 14 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into the same share class of another Liberty fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- By mail You may send a signed letter of instruction or stock power form along with any share certificates to be sold to the address below. In your letter of instruction, note your Fund's name, share class, account number, and the dollar value or number of shares you wish to sell. All account owners must sign the letter, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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 Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. __ 15 DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- The Fund has adopted a plan under Rule 12b-1 that permits it to pay the Fund's distributor, marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees may reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after a certain number of years, eliminating a portion of the distribution fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account; Sales Charge" for the conversion schedule applicable to Class B shares. 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 (typically Monday through Friday). 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's firm, the firm must receive your order by the close of trading on the NYSE to receive that day's price. The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of these securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. __ 16 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Fund's transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class B and C shares. Certificates will be issued for Class A shares only if requested. If you decide to hold share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the distributor. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 17 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions 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. __ 18 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .68% of the Fund's average daily net assets. Liberty WAM also receives an administrative services fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Ralph Wanger Lead portfolio manager Ralph Wanger is chief strategist of the Liberty Acorn Funds and has been portfolio manager of Liberty Acorn Fund since its inception in 1970. He is president and a member of Liberty Acorn Trust's Board of Trustees since 1970. Mr. Wanger has been president of Liberty WAM since September 29, 2000 and was a principal of WAM before that date. He is a Chartered Financial Analyst (CFA), and earned his BS and MS degrees in Industrial Management from the Massachusetts Institute of Technology. Charles P. McQuaid Co-portfolio manager Charles McQuaid is a senior vice president and member of Liberty Acorn Trust's Board of Trustees. He has been director of Domestic Research at Liberty WAM and WAM, and was a principal of WAM until September 29, 2000. Mr. McQuaid has been a member of Liberty Acorn Fund's management team since 1978. He is a CFA, and earned his BBA from the University of Massachusetts and his MBA from the University of Chicago. __ 19 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn Fund- Principal Investment Strategies" and "Liberty Acorn Fund- Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund 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. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies. Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, it likely produce superior flexibility to pursue identifies a price that performance that is strategic objectives and it believes would also sustainable over time. is essential to make the stock a good maintaining a competitive value. advantage. - -------------------------------------------------------------------------------- ___ 20 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 financial performance. Information is shown for the Fund's fiscal year since inception of Class A, Class B and Class C shares. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited and has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750.
Selected data for a share of each class outstanding throughout each period For the Period Ended 12/31/2000 (a) Class A Class B Class C Net Asset Value, Beginning of Period $ 17.88 $ 17.88 $17.88 - ------------------------------------------------------------------------------------------------ Income from Investment Operations Net investment income (b) .01 (.01) (.01) Net realized and unrealized gain 1.22 1.22 1.22 - ------------------------------------------------------------------------------------------------ Total from investment operations 1.23 1.21 1.21 - ------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders From net investment income (.06) (.06) (.06) From net realized gains (1.86) (1.86) (1.86) - ------------------------------------------------------------------------------------------------ Total distributions declared to shareholders (1.92) (1.92) (1.92) - ------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 17.19 $ 17.17 $17.17 ================================================================================================ Total Return (c) (d) 7.40% 7.27% 7.27% - ------------------------------------------------------------------------------------------------ Ratios to Average Net Assets Expenses (e) (f) 1.03% 1.68% 1.68% Net investment income (e) (f) .39% (.26%) (.26%) Portfolio Turnover 29% 29% 29% Net assets at end of period (000's) $18,252 $15,951 $8,510
(a) Class A, Class B and Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. ___ 22 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ __ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn Fund (formerly Acorn Fund) - -------------------------------------------------------------------------------- [LOGO] L I B E R T Y ----------------- F U N D S Liberty Funds Distributor, Inc. (c)2001 One Financial Center, Boston, MA 02111-2621, 800-426-3750 www.libertyfunds.com LIBERTY ACORN FOREIGN FORTY Prospectus, May 1, 2001 Class A, B and C Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured; May Lose Value; No Bank Guarantee T A B L E O F C O N T E N T S LIBERTY ACORN FOREIGN FORTY 2 - ------------------------------------------------------------------ Investment Goal.............................................. 2 Principal Investment Strategies.............................. 2 Principal Investment Risks................................... 2 Performance History.......................................... 5 Your Expenses................................................ 7 YOUR ACCOUNT 8 - ------------------------------------------------------------------ How to Buy Shares............................................ 8 Sales Charges................................................ 9 How to Exchange Shares....................................... 13 How to Sell Shares........................................... 13 Fund Policy on Trading of Fund Shares........................ 14 Distribution and Service Fees................................ 15 Other Information About Your Account......................... 15 MANAGING THE FUND 18 - ------------------------------------------------------------------ Investment Advisor........................................... 18 Portfolio Managers/The Investment Team....................... 18 OTHER INVESTMENT STRATEGIES AND RISKS 19 - ------------------------------------------------------------------ The Information Edge......................................... 19 Stock Strength Comes First................................... 20 Derivative Strategies........................................ 20 Temporary Defensive Strategies............................... 20 FINANCIAL HIGHLIGHTS 21 - ------------------------------------------------------------------
Liberty Acorn Foreign Forty INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Foreign Forty seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Foreign Forty invests primarily in the stocks of medium- to larger-sized companies based in developed markets (for example, Japan, Canada and United Kingdom) outside the U.S. The Fund invests in at least three countries. The Fund is a non-diversified fund that takes advantage of its advisor'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 billion to $25 billion, at the time of purchase. The Fund believes that companies within this capitalization range are not as well known by financial analysts, and may offer higher return potential than the stocks of companies with capitalizations above $25 billion. Liberty Acorn Foreign Forty typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn Foreign Forty is an international fund and invests the majority of its assets in the stocks of foreign companies based in developed markets outside the U.S. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - ------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and individual stock prices may fluctuate ___ 2 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than domestic securities, which means that the Fund may 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. ___ 3 As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore, the Fund may have an increased risk of loss compared to a similar diversified mutual fund. 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. ___ 4 Understanding Performance Calendar year total returns show the Fund's Class Z share performance for each completed calendar year. They include the effects of Class Z expenses. Class A, Class B and Class C shares are subject to sales charges, 12b-1 fees and different expenses that are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. Average annual total returns are measures of the Fund's performance over the past one-year and life of the Fund periods. They include the effects of Class Z expenses. The table shows for each class the Class Z performance restated to reflect the effect of sales charges of the class. The Fund's returns are compared to the SSB World ex-U.S. Cap Range $2-10 Billion Index. The SSB World ex-U.S. Cap Range $2-10 Billion Index is Salomon Smith Barney'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 or expenses, is not subject to taxes, and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- Because Class A, Class B and Class C shares have not been offered for a full calendar year, the information provided in the bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. Class Z shares are offered to certain investors through separate prospectuses. The performance table following the bar chart shows how the Fund's average annual returns for (1) the Class Z shares and (2) the Class Z shares, restated to reflect the sales charges of the Class A, Class B and Class C shares, respectively, 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 the changes in the Fund's Class Z performance. All returns include the reinvestment of dividends and distributions. In this prospectus, after-tax returns are shown only for Class Z shares and after-tax returns for Class A, Class B and Class C shares will vary. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns (Class Z)/1/ - ------------------------------------------------------------------------------ [BAR CHART]
Year Return ---- ------ 1999 81.60% 2000 -13.35%
For period shown in bar chart: Best quarter: 4th quarter 1999, +46.65% Worst quarter: 2nd quarter 2000, -14.03% The Fund's total return through March 31, 2001 was -20.82%. (1) Class Z shares are not offered through this prospectus, but Class A, Class B and Class C shares would have substantially similar annual returns because the shares are invested in the same portfolio of securities and these returns differ only to the extent that the classes do not have the same expenses. __ 5 Average Annual Total Returns -- for periods ended December 31, 2000(2) Life of the Inception Date 1 Year Fund/(3)/ Class A 10/16/00 -18.33% 26.15% - -------------------------------------------------------------------------------- Class B 10/16/00 -17.75% 28.60% - -------------------------------------------------------------------------------- Class C 10/16/00 -14.26% 29.71% - -------------------------------------------------------------------------------- Class Z 11/23/98 Return Before Taxes -13.35% 29.75% - -------------------------------------------------------------------------------- Return After Taxes on Distributions -13.59% 29.52% - -------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -8.04% 24.32% - -------------------------------------------------------------------------------- SSB Cap Range n/a -6.05% 9.03% $2-10B - -------------------------------------------------------------------------------- (2) Class A, Class B and Class C performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to the inception of the newer classes of shares which were initially offered on October 16, 2000. Class Z returns are not restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses were reflected, the returns for prior to the inception of the newer classes of shares would be lower. Class Z shares were initially offered on November 23, 1998. (3) The Fund's Class Z performance in 1999 was achieved during a period of unusual market conditions. ___ 6 UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Liberty Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, 12b-1 fees and administrative costs, including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions . assumes Class B shares convert to Class A shares after eight years 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. Shareholder Fees/(4)/ (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/(5)/ 5.00 1.00 - -------------------------------------------------------------------------------------- Redemption fee (6) (6) (6)
(4) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (5) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (6) 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/(7)/ (%) .95% .95% .95% - --------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) .35% 1.00% 1.00% - --------------------------------------------------------------------------------------- Other expenses (%) .38% .38% .38% - --------------------------------------------------------------------------------------- Total annual fund operating expenses/(8)/ (%) 1.68% 2.33% 2.33%
(7) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." (8) The Fund's advisor has voluntarily agreed to reimburse the Fund for any ordinary operating expenses (exclusive of distribution and service fees, interest, taxes and extraordinary expenses, if any) exceeding 1.45% of the average annual net assets for Class A, Class B and Class C, respectively. This arrangement may be modified or terminated by either the Fund or its advisor on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class A, B and C shares would be 1.45%. Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years Class A: $736 $1,074 $1,435 $2,448 - ------------------------------------------------------------------------------------- Class B: did not sell your shares $236 $ 727 $1,245 $2,504 sold all your shares at the end of the period $736 $1,027 $1,445 $2,504 - ------------------------------------------------------------------------------------- Class C: did not sell your shares $236 $ 727 $1,245 $2,666 sold all your shares at the end of the period $336 $ 727 $1,245 $2,666
___ 7 Your Account INVESTMENT MINIMUMS Initial Investment............ $1,000 Subsequent Investments........ $ 50 Automatic Investment Plan*.... $ 50 Retirement Plans*............. $ 25 * The initial investment minimum of $1,000 is waived on this plan. 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. HOW TO BUY SHARES - -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that you placed your order with your brokerage firm or your payment has been received and your application is complete, including all necessary signatures. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares by exchanging shares you own in one fund for shares of the same class of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer money from your bank account to your Fund account by calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in another fund, call 1-800-345-6611. ___ 8 CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor firm does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. SALES CHARGES - -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, these sales charges are waived, as described below and in the Statement of Additional Information. Class A shares Your purchases of Class A shares generally are 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. A portion of the sales charge is the commission paid to the financial advisor firm on the sale of Class A shares. The sales charge you pay on additional investments is based on the total amount of your purchase and the current value of your account. 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 As a % of price the public As a % retained by offering of your financial Amount of purchase price investment advisor firm 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
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month following each purchase. The CDSC does not apply to retirement plans purchasing shares through a fee-based program. ___ 9 UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the month-end of the month in which the purchase is made. Shares you purchase with reinvested dividends or capital gains are not subject to a CDSC. When you place an order to sell shares, your Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest. This policy helps reduce and possibly eliminate the potential impact of the CDSC. For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows: Purchases Over $1 Million Amount purchased Commission % First $3 million 1.00 - -------------------------------------------- ----------------------------------- $3 million to less than $5 million 0.80 - -------------------------------------------- ----------------------------------- $5 million to less than $25 million 0.50 - -------------------------------------------- ----------------------------------- $25 million or more 0.25 The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding. For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million. Reduced Sales Charges for Larger Investments There are two ways for you to pay a lower sales charge when purchasing Class A shares. The first is through Rights of Accumulation. If the combined value of the Fund accounts maintained by you, your spouse or your minor children reaches a discount level (according to the chart on the previous page), your next purchase will receive the lower sales charge. The second is by signing a Statement of Intent within 90 days of your purchase. By doing so, you would be able to pay the lower sales charge on all purchases by agreeing to invest a total of at least $50,000 within 13 months. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. In addition, certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a Fund share excluding any sales charges. See the Statement of Additional Information for a description of these situations. Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to the completion of the periods shown in the charts below. The CDSC generally declines each year and eventually disappears over time. The distributor pays the financial advisor firm an up-front commission on sales of Class B shares as depicted in the charts below. ___ 10 Purchases of less than $250,000: Class B Sales Charges Holding period after purchase % deducted when shares are sold Through first year 5.00 - -------------------------------------------------------------------------------- Through second year 4.00 - -------------------------------------------------------------------------------- Through third year 3.00 - -------------------------------------------------------------------------------- Through fourth year 3.00 - -------------------------------------------------------------------------------- Through fifth year 2.00 - -------------------------------------------------------------------------------- Through sixth year 1.00 - -------------------------------------------------------------------------------- Longer than six years None Commission to financial advisors is 5.00%. Automatic conversion to Class A shares is eight years after purchase. You can pay a lower CDSC and reduce the holding period when making purchases of Class B shares through a financial advisor firm which participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisor firms are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating firms, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating firms, Rights of Accumulation apply, so that if the combined value of Fund accounts maintained by you, your spouse or your minor children is at or above a discount level, your next purchase will receive the lower CDSC and the applicable reduced holding period. Purchases of $250,000 to less than $500,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - ------------------------------------------------------------------------------- Through second year 2.00 - ------------------------------------------------------------------------------- Through third year 1.00 - ------------------------------------------------------------------------------- Longer than three years 0.00 Commission to financial advisors is 2.50%. Automatic conversion to Class A shares is four years after purchase. __ 11 Purchases of $500,000 to less than $1 million: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Commission to financial advisors is 1.75%. Automatic conversion to Class A shares is three years after purchase. If you exchange into a Fund participating in the Class B share discount program or transfer your Fund account from a financial advisor which does not participate in the program to one who does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which cause the exchanged or transferred account to exceed the applicable discount level will receive the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a fund or financial advisor which does not, the exchanged or transferred shares will retain the pre-existing CDSC but all additional purchases of Class B shares will be in accordance with the higher CDSC and longer holding period of the non-participating fund or financial advisor. Class C shares Similar to Class B 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 the financial advisor firm an up-front commission of 1.00% on sales of Class C shares. Class C Sales Charges Years after purchase % deducted when shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 __ 12 HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund distributed by Liberty Funds Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you exchanged. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, (ii) you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. __ 13 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into the same share class of another Liberty fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- By mail You may send a signed letter of instruction or stock power form along with any share certificates to be sold to the address below. In your letter of instruction, note your Fund's name, share class, account number, and the dollar value or number of shares you wish to sell. All account owners must sign the letter, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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 Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. __ 14 DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- The Fund has adopted a plan under Rule 12b-1 that permits it to pay the Fund's distributor, marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees may reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after a certain number of years, eliminating a portion of the distribution fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account; Sales Charge" for the conversion schedule applicable to Class B shares. 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 (typically Monday through Friday). 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's firm, the firm must receive your order by the close of trading on the NYSE to receive that day's price. The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of these securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. __ 15 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Fund's transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class B and C shares. Certificates will be issued for Class A shares only if requested. If you decide to hold share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the distributor. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 16 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. __ 17 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .95% of the Fund's average daily net assets. Liberty WAM also receives an administrative services fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGER/THE INVESTMENT TEAM - -------------------------------------------------------------------------------- The portfolio manager is responsible for making daily investment decisions. Through August 31, 2001, Marcel P. Houtzager will be the lead portfolio manager of the Fund. Marcel P. Houtzager Lead portfolio manager Marcel Houtzager is a vice president of Liberty Acorn Trust, and has managed Liberty Acorn Foreign Forty since its inception in 1998. He has been a member of the international analytical team at Liberty WAM and at WAM since 1992, and was a principal of WAM from 1995 to September 29, 2000. Mr. Houtzager also manages an international mutual fund underlying variable insurance products and the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and a CPA, and earned his BA from Pomona College and his MBA from the University of California at Berkeley. The Investment Team Effective September 1, 2001, Liberty WAM will use a team to manage the Fund. Team members will share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member will have one or more particular areas of expertise. The team will be responsible for making daily investment decisions, and will utilize the entire management team's input and advice when making buy and sell determinations. No single individual at Liberty WAM will have primary management responsibilities for the Fund's portfolio securities. __ 18 UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn Foreign Forty--Principal Investment Strategies" and "Liberty Acorn Foreign Forty--Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. Other Investment Strategies and Risks The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund invests in entrepreneurially managed smaller, mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies. Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative . managerial skill capital to growth potential . market niche . conservative . valuable assets . good earnings . accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, likely produce superior flexibility to pursue it identifies a price performance that is strategic objectives and that it believes would sustainable over time. is essential to also make the stock a maintaining a competitive good value. advantage. - -------------------------------------------------------------------------------- ___ 19 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 financial performance. Information is shown for the Fund's fiscal year since inception of Class A, Class B and Class C shares. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited and has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn Foreign Forty
Selected data for a share of each class outstanding throughout each period For the Period Ended 12/31/2000 (a) Class A Class B Class C Net Asset Value, Beginning of Period $17.71 $17.71 $17.71 - -------------------------------------------------------------------------------------------- Income from Investment Operations Net investment income (b) (.03) (.05) (.05) Net realized and unrealized gain (.53) (.53) (.53) - -------------------------------------------------------------------------------------------- Total from investment operations (.56) (.58) (.58) - -------------------------------------------------------------------------------------------- Net Asset Value, End of Period $17.15 $17.13 $17.14 ============================================================================================ Total Return (c) (d) (3.16%) (3.27%) (3.22%) - -------------------------------------------------------------------------------------------- Ratios to Average Net Assets Expenses (e) (f) 1.29% 1.94% 1.94% Net investment income (e) (f) (.79%) (1.44%) (1.44%) Portfolio Turnover 79% 79% 79% Net assets at end of period (000's) $3,172 $1,551 $3,399
(a) Class A, Class B and Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. ___ 21 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - 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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __ 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn Foreign Forty (formerly Acorn Foreign Forty) ________________________________________________________________________________ [LIBERTY LOGO] LIBERTY ACORN USA Prospectus, May 1, 2001 Class A, B and C Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured May Lose Value No Bank Guarantee
- ------------------------------------------------------------------------------------------------ T A B L E O F C O N T E N T S LIBERTY ACORN USA 2 MANAGING THE FUND 17 - ---------------------------------------------- ------------------------------------------ Investment Goal..............................2 Investment Advisor......................17 Principal Investment Strategies..............2 Portfolio Manager.......................17 Principal Investment Risks...................2 Performance History..........................4 OTHER INVESTMENT Your Expenses................................6 STRATEGIES AND RISKS 18 ------------------------------------------ YOUR ACCOUNT 6 The Information Edge....................18 - ---------------------------------------------- Stock Strength Comes First..............19 How to Buy Shares............................7 Derivative Strategies...................19 Sales Charges................................8 Temporary Defensive Strategies..........19 How to Exchange Shares......................12 How to Sell Shares..........................12 FINANCIAL HIGHLIGHTS 20 Fund Policy on Trading of Fund Shares.......13 ------------------------------------------ Distribution and Service Fees...............14 Other Information About Your Account........14
Liberty Acorn USA INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn USA seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn USA invests primarily 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 $2 billion at the time of 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. Liberty Acorn USA typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor 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 market conditions, will invest at least 65% of its assets 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 advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 ___ 2 from factors affecting individual companies, industries or the securities market as a whole. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. 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 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year. They include the effects of Class Z expenses. Class A, Class B and Class C shares are subject to sales charges, 12b-1 fees and different expenses that are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. Average annual total returns are measures of the Fund's Class Z performance over the past one-year, three-year and life of the Fund periods. They include the effects of Class Z expenses. The table shows for each class the Class Z performance restated to reflect the effect of sales charges of each class. The Fund's returns are compared to the Russell 2000 Index. The Russell 2000 Index is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. Unlike the Fund, an index is not an investment, does not incur fees or expenses and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- Because Class A, Class B and Class C shares have not been offered for a full calendar year, the information provided in the bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. Class Z shares are offered to certain investors through separate prospectuses. The performance table following the bar chart shows how the Fund's average annual returns for (1) the Class Z shares and (2) the Class Z shares, restated to reflect the sales charges of the Class A, Class B and Class C shares, respectively, compare with those of broad measures of market performance for one year, three years and life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's Class Z performance. All returns include the reinvestment of dividends and distributions. In this prospectus, after-tax returns are shown only for Class Z shares and after-tax returns for Class A, Class B and Class C shares will vary. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns (Class Z)/(1)/ Year Return ---- ------ 1997 32.30% 1998 5.79% 1999 23.02% 2000 -8.99% For period shown in bar chart: Best quarter: 4th quarter 1999, +18.93% Worst quarter: 3rd quarter 1998, -19.25% The Fund's total return through March 31, 2001 was 3.56%. (1) Class Z shares are not offered through this prospectus, but Class A, Class B and Class C shares would have substantially similar annual returns because the shares are invested in the same portfolio of securities and these returns differ only to the extent that the classes do not have the same expenses. ___ 4 Average Annual Total Returns -- for periods ended December 31, 2000/(2)/
Life of the Inception Date 1 Year 3 Years Fund Class A 10/16/00 -14.34% 3.69% 13.33% - ----------------------------------------------------------------------------------------- Class B 10/16/00 -13.61% 4.85% 14.58% - ----------------------------------------------------------------------------------------- Class C 10/16/00 -10.06% 5.73% 14.87% - ----------------------------------------------------------------------------------------- Class Z 9/04/96 Return Before Taxes -8.99% 5.80% 14.93% - ----------------------------------------------------------------------------------------- Return After Taxes on Distributions -9.43% 4.40% 13.68% - ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -5.10% 4.47% 12.15% - ----------------------------------------------------------------------------------------- Russell 2000 n/a -3.02% 4.65% 10.30% - -----------------------------------------------------------------------------------------
(2) Class A, Class B and Class C performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to the inception of the newer classes of shares which were initially offered on October 16, 2000. Class Z returns are not restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses were reflected, the returns for prior to the inception of the newer classes of shares would be lower. Class Z shares were initially offered on September 4, 1996. ___ 5 UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Liberty Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, 12b-1 fees and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions . assumes Class B shares convert to Class A shares after eight years 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. Shareholder Fees/(3)/ (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/(4)/ 5.00 1.00 - --------------------------------------------------------------------------------------- Redemption fee (5) (5) (5)
(3) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (4) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (5) 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/(6)/(%) .93% .93% .93% - --------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) .35% 1.00% 1.00% - --------------------------------------------------------------------------------------- Other expenses (%) .23% .23% .23% - --------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.51% 2.16% 2.16%
(6) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years Class A: $720 $1,025 $1,351 $2,273 - -------------------------------------------------------------------------------------- Class B: did not sell your shares $219 $676 $1,159 $2,328 sold all your shares at the end of the period $719 $976 $1,359 $2,328 - -------------------------------------------------------------------------------------- Class C: did not sell your shares $219 $676 $1,159 $2,493 sold all your shares at the end of the period $319 $676 $1,159 $2,493
___ 6 Your Account INVESTMENT MINIMUMS Initial Investment $1,000 Subsequent Investments $50 Automatic Investment Plan* $50 Retirement Plans* $25 * The initial investment minimum of $1,000 is waived on this plan. 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. HOW TO BUY SHARES - -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that you placed your order with your brokerage firm or your payment has been received and your application is complete, including all necessary signatures. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares by exchanging shares you own in one fund for shares of the same class of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer money from your bank account to your Fund account by calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in another fund, call 1-800-345-6611. ___ 7 CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus - Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor firm does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 Million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. SALES CHARGES - -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, these sales charges are waived, as described below and in the Statement of Additional Information. Class A shares Your purchases of Class A shares generally are 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. A portion of the sales charge is the commission paid to the financial advisor firm on the sale of Class A shares. The sales charge you pay on additional investments is based on the total amount of your purchase and the current value of your account. 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 As a % of price the public As a % retained by offering of your financial Amount of purchase price investment advisor firm 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
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month following each purchase. The CDSC does not apply to retirement plans purchasing shares through a fee-based program. ___ 8 UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the month-end of the month in which the purchase is made. Shares you purchase with reinvested dividends or capital gains are not subject to a CDSC. When you place an order to sell shares, your Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest. This policy helps reduce and possibly eliminate the potential impact of the CDSC. For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows: Purchases Over $1 Million Amount purchased Commission % First $3 million 1.00 - -------------------------------------------------------------------------------- $3 million to less than $5 million 0.80 - -------------------------------------------------------------------------------- $5 million to less than $25 million 0.50 - -------------------------------------------------------------------------------- $25 million or more 0.25 The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding. For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million. Reduced Sales Charges for Larger Investments There are two ways for you to pay a lower sales charge when purchasing Class A shares. The first is through Rights of Accumulation. If the combined value of the Fund accounts maintained by you, your spouse or your minor children reaches a discount level (according to the chart on the previous page), your next purchase will receive the lower sales charge. The second is by signing a Statement of Intent within 90 days of your purchase. By doing so, you would be able to pay the lower sales charge on all purchases by agreeing to invest a total of at least $50,000 within 13 months. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. In addition, certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a Fund share excluding any sales charges. See the Statement of Additional Information for a description of these situations. Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to the completion of the periods shown in the charts below. The CDSC generally declines each year and eventually disappears over time. The distributor pays the financial advisor firm an up-front commission on sales of Class B shares as depicted in the charts below. ___ 9 Purchases of less than $250,000: Class B Sales Charges Holding period after purchase % deducted when shares are sold Through first year 5.00 - -------------------------------------------------------------------------------- Through second year 4.00 - -------------------------------------------------------------------------------- Through third year 3.00 - -------------------------------------------------------------------------------- Through fourth year 3.00 - -------------------------------------------------------------------------------- Through fifth year 2.00 - -------------------------------------------------------------------------------- Through sixth year 1.00 - -------------------------------------------------------------------------------- Longer than six years None Commission to financial advisors is 5.00%. Automatic conversion to Class A shares is eight years after purchase. You can pay a lower CDSC and reduce the holding period when making purchases of Class B shares through a financial advisor firm which participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisor firms are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating firms, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating firms, Rights of Accumulation apply, so that if the combined value of Fund accounts maintained by you, your spouse or your minor children is at or above a discount level, your next purchase will receive the lower CDSC and the applicable reduced holding period. Purchases of $250,000 to less than $500,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - ------------------------------------------------------------------------------- Through second year 2.00 - ------------------------------------------------------------------------------- Through third year 1.00 - ------------------------------------------------------------------------------- Longer than three years 0.00 Commission to financial advisors is 2.50%. Automatic conversion to Class A shares is four years after purchase. ___ 10 Purchases of $500,000 to less than $1 million: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - ------------------------------------------------------------------------------- Through second year 2.00 - ------------------------------------------------------------------------------- Through third year 1.00 Commission to financial advisors is 1.75%. Automatic conversion to Class A shares is three years after purchase. If you exchange into a Fund participating in the Class B share discount program or transfer your Fund account from a financial advisor which does not participate in the program to one who does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which cause the exchanged or transferred account to exceed the applicable discount level will receive the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a fund or financial advisor which does not, the exchanged or transferred shares will retain the pre-existing CDSC but all additional purchases of Class B shares will be in accordance with the higher CDSC and longer holding period of the non-participating fund or financial advisor. Class C shares Similar to Class B 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 the financial advisor firm an up-front commission of 1.00% on sales of Class C shares. Class C Sales Charges Years after purchase % deducted when shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 ___ 11 HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund distributed by Liberty Funds Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you exchanged. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, (ii) you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. ___ 12 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into the same share class of another Liberty fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- By mail You may send a signed letter of instruction or stock power 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - ------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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 Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. ___ 13 DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- The Fund has adopted a plan under Rule 12b-1 that permits it to pay the Fund's distributor, marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees may reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after a certain number of years, eliminating a portion of the distribution fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account; Sales Charge" for the conversion schedule applicable to Class B shares. 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 (typically Monday through Friday). 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's firm, the firm must receive your order by the close of trading on the NYSE to receive that day's price. The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. 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 advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Fund's transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. ___ 14 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Share Certificates Share certificates are not available for Class B and C shares. Certificates will be issued for Class A shares only if requested. If you decide to hold share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the distributor. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 15 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. ___ 16 Managing The Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .93% of the Fund's average daily net assets. Liberty WAM also receives an administrative services fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Robert A. Mohn Lead portfolio manager Robert Mohn is a vice president of Liberty Acorn Trust. He has been a member of the domestic analytical team at Liberty WAM and WAM since 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Liberty Acorn USA since its inception in 1996, and also manages a mutual fund underlying variable insurance products and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and holds a BS from Stanford University and an MBA from the University of Chicago. ___ 17 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn USA" Principal Investment Strategies" and "Liberty Acorn USA-Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund 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. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies. Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------------- . superior technology . low debt . reasonable . innovative marketing . adequate working stock price relative . managerial skill capital to growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, likely produce superior flexibility to pursue it identifies a price performance that is strategic objectives and that it believes would sustainable over time. is essential to also make the stock a maintaining a competitive good value. advantage. - -------------------------------------------------------------------------------- ___ 18 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 financial performance. Information is shown for the Fund's fiscal year since inception of Class A, Class B and Class C shares. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited and has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750.
Liberty Acorn USA Selected data for a share of each class outstanding throughout each period For the Period Ended 12/31/2000 (a) Class A Class B Class C Net Asset Value, Beginning of Period $ 13.83 $ 13.83 $13.83 ----------------------------------------------------------------------------------- Income from Investment Operations Net investment income (b) (.01) (.03) (.03) Net realized and unrealized gain 1.06 1.07 1.07 ----------------------------------------------------------------------------------- Total from investment operations 1.05 1.04 1.04 ----------------------------------------------------------------------------------- Net Asset Value, End of Period $ 14.88 $ 14.87 $14.87 =================================================================================== Total Return (c) (d) 7.59% 7.52% 7.52% ----------------------------------------------------------------------------------- Ratios to Average Net Assets Expenses (e) (f) 1.17% 1.82% 1.82% Net investment income (e) (f) (.49%) (1.14%) (1.14%) Portfolio Turnover 45% 45% 45% Net assets at end of period (000's) $ 798 $ 685 $ 347
(a) Class A, Class B and Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. ___ 20 Notes ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 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________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ___ 23 For More Information - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn USA (formerly Acorn USA) - -------------------------------------------------------------------------------- LIBERTY FUNDS Liberty Funds Distributor, Inc. (C) 2001 One Financial Center, Boston, MA 02111-2621, 800-426-3750 www.libertyfunds.com - ------------------------------------------------------------------- LIBERTY ACORN TWENTY Prospectus, May 1, 2001 - ------------------------------------------------------------------- Class A, B and C Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured; May Lose Value; No Bank Guarantee - ------------------------------------------------------------- T A B L E O F C O N T E N T S LIBERTY ACORN TWENTY 2 - ------------------------------------------------------------- Investment Goal............................................ 2 Principal Investment Strategies............................ 2 Principal Investment Risks................................. 2 Performance History........................................ 4 Your Expenses.............................................. 6 YOUR ACCOUNT 7 - ------------------------------------------------------------- How to Buy Shares.......................................... 7 Sales Charges.............................................. 8 How to Exchange Shares.....................................12 How to Sell Shares.........................................12 Fund Policy on Trading of Fund Shares......................13 Distribution and Service Fees..............................14 Other Information About Your Account.......................14 MANAGING THE FUND 17 - ------------------------------------------------------------- Investment Advisor.........................................17 Portfolio Manager..........................................17 OTHER INVESTMENT STRATEGIES AND RISKS 18 - ------------------------------------------------------------- The Information Edge.......................................18 Stock Strength Comes First.................................19 Derivative Strategies......................................19 Temporary Defensive Strategies.............................19 FINANCIAL HIGHLIGHTS 20 - -------------------------------------------------------------
Liberty Acorn Twenty INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Twenty seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Twenty invests primarily in the stocks of medium- to larger-sized U.S. companies. The Fund is a non-diversified fund that takes advantage of its advisor's research and stock-picking capabilities to invest in a limited number of companies (between 20-25) with market capitalizations of $2 billion to $12 billion at the time of purchase, offering the potential to provide above-average growth over time. The Fund believes that companies within this capitalization range are not as well known by financial analysts, and may offer higher return potential than the stocks of companies with capitalizations above $12 billion. Liberty Acorn Twenty typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Although the Fund does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended ___ 2 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore, the Fund may have an increased risk of loss compared to a similar diversified mutual fund. 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 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year. They include the effects of Class Z expenses. Class A, Class B and Class C shares are subject to sales charges, 12b-1 fees and different expenses that are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. Average annual total returns are measures of the Fund's Class Z performance over the past one-year and life of the Fund periods. They include the effects of Class Z expenses. The table shows for each class the Class Z performance restated to reflect the effect of sales charges of the class. The Fund's returns are compared to the S&P Mid Cap 400 Index. The S&P Mid Cap 400 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 or expenses, is not subject to taxes, and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- Because Class A, Class B and Class C shares have not been offered for a full calendar year, the information provided in the bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. Class Z shares are offered to certain investors through a separate prospectus. The performance table following the bar chart shows how the Fund's average annual returns for (1) the Class Z shares and (2) the Class Z shares, restated to reflect the sales charges of the Class A, Class B and Class C shares, respectively, compare with those of broad measures of market performance for one year and life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's Class Z performance. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns (Class Z)/(1)/ [BAR CHART] 1999 29.30% 2000 11.68%
For period shown in bar chart: Best quarter: 4th quarter 1999, +14.35% Worst quarter: 3rd quarter 1999, -7.13% The Fund's total return through March 31, 2001 was -6.86%. (1) Class Z shares are not offered through this prospectus, but Class A, Class B and Class C shares would have substantially similar annual returns because the shares are invested in the same portfolio of securities and these returns differ only to the extent that the classes do not have the same expenses. ___ 4 Average Annual Total Returns-- for periods ended December 31, 2000/(2)/ Inception Date Life of the 1 Year Fund Class A 10/16/00 5.18% 19.54% -------------------------------------------------------------------- Class B 10/16/00 6.44% 21.73% -------------------------------------------------------------------- Class C 10/16/00 10.44% 22.87% -------------------------------------------------------------------- Class Z 11/23/98 Return Before Taxes 11.68% 22.99% -------------------------------------------------------------------- Return After Taxes on Distributions 8.84% 21.62% -------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 8.15% 18.33% -------------------------------------------------------------------- S&P MidCap 400 n/a 17.51% 21.13% -------------------------------------------------------------------- (2) Class A, Class B and Class C performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to the inception of the newer classes of shares which were initially offered on October 16, 2000. Class Z returns are not restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses were reflected, the returns for prior to the inception of the newer classes of shares would be lower. Class Z shares were initially offered on November 23, 1998. ___ 5 UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Liberty Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, 12b-1 fees and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions . assumes Class B shares convert to Class A shares after eight years 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. Shareholder Fees/(3)/ (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/(4)/ 5.00 1.00 ------------------------------------------------------------------------------- Redemption fee (5) (5) (5) (3) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (4) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (5) 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/(6)/(%) .90% .90% .90% ------------------------------------------------------------ ------------------ Distribution and service (12b-1) fees (%) .35% 1.00% 1.00% ------------------------------------------------------------ ------------------ Other expenses (%) .39% .39% .39% ------------------------------------------------------------ ------------------ Total annual fund operating expenses/(7)/(%) 1.64% 2.29% 2.29% (6) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." (7) The Fund's Advisor has voluntarily agreed to reimburse the Fund for any ordinary operating expenses (exclusive of distribution and service fees, interest, taxes and extraordinary expenses, if any) exceeding 1.35% of the average annual net assets for Class A, Class B and Class C shares. This arrangement may be modified or terminated by either the Fund or its advisor on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class A, B and C shares would be 1.35%. Example Expenses (your actual costs may be higher or lower) Class 1 Year 3 Years 5 Years 10 Years Class A: $732 $1,063 $1,415 $2,407 ------------------------------------------------------------------------------- Class B: did not sell your shares $232 $ 715 $1,225 $2,463 sold all your shares at the end of the period $732 $1,015 $1,425 $2,463 ------------------------------------------------------------------------------- Class C: did not sell your shares $232 $ 715 $1,225 $2,626 sold all your shares at the end of the period $332 $ 715 $1,225 $2,626 ____ 6 Your Account INVESTMENT MINIMUMS Initial Investment............... $1,000 Subsequent Investments........... $50 Automatic Investment Plan*....... $50 Retirement Plans*................ $25 * The initial investment minimum of $1,000 is waived on this plan. 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. HOW TO BUY SHARES - -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that you placed your order with your brokerage firm or your payment has been received and your application is complete, including all necessary signatures. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. ------------------------------------------------------------------------------- By check For existing accounts, fill out and return the (existing account) additional investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. ------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares by exchanging shares you own in one fund for shares of the same class of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422- 3737. ------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. ------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer money from your bank account to your Fund account by calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. ------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by diversification one fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in another fund, call 1-800-345-6611. ___ 7 CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor firm does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. SALES CHARGES - -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, these sales charges are waived, as described below and in the Statement of Additional Information. Class A shares Your purchases of Class A shares generally are 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. A portion of the sales charge is the commission paid to the financial advisor firm on the sale of Class A shares. The sales charge you pay on additional investments is based on the total amount of your purchase and the current value of your account. 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 As a % of price the public As a % retained by offering of your financial Amount of purchase price investment advisor firm 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 Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month following each purchase. The CDSC does not apply to retirement plans purchasing shares through a fee-based program. ___ 8 Understanding Contingent Deferred Sales Charges Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the month-end of the month in which the purchase is made. Shares you purchase with reinvested dividends or capital gains are not subject to a CDSC. When you place an order to sell shares, your Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest. This policy helps reduce and possibly eliminate the potential impact of the CDSC. For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows: Purchases Over $1 Million Amount purchased Commission % First $3 million 1.00 - ----------------------------------------------------------------------------- $3 million to less than $5 million 0.80 - ----------------------------------------------------------------------------- $5 million to less than $25 million 0.50 - ----------------------------------------------------------------------------- $25 million or more 0.25 The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding. For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million. Reduced Sales Charges for Larger Investments There are two ways for you to pay a lower sales charge when purchasing Class A shares. The first is through Rights of Accumulation. If the combined value of the Fund accounts maintained by you, your spouse or your minor children reaches a discount level (according to the chart on the previous page), your next purchase will receive the lower sales charge. The second is by signing a Statement of Intent within 90 days of your purchase. By doing so, you would be able to pay the lower sales charge on all purchases by agreeing to invest a total of at least $50,000 within 13 months. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. In addition, certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a Fund share excluding any sales charges. See the Statement of Additional Information for a description of these situations. Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to the completion of the periods shown in the charts below. The CDSC generally declines each year and eventually disappears over time. The distributor pays the financial advisor firm an up-front commission on sales of Class B shares as depicted in the charts below. ____ 9 Purchases of less than $250,000: Class B Sales Charges Holding period after purchase % deducted when shares are sold Through first year 5.00 - -------------------------------------------------------------------------------- Through second year 4.00 - -------------------------------------------------------------------------------- Through third year 3.00 - -------------------------------------------------------------------------------- Through fourth year 3.00 - -------------------------------------------------------------------------------- Through fifth year 2.00 - -------------------------------------------------------------------------------- Through sixth year 1.00 - -------------------------------------------------------------------------------- Longer than six years None Commission to financial advisors is 5.00%. Automatic conversion to Class A shares is eight years after purchase. You can pay a lower CDSC and reduce the holding period when making purchases of Class B shares through a financial advisor firm which participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisor firms are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating firms, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating firms, Rights of Accumulation apply, so that if the combined value of Fund accounts maintained by you, your spouse or your minor children is at or above a discount level, your next purchase will receive the lower CDSC and the applicable reduced holding period. Purchases of $250,000 to less than $500,000: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 - -------------------------------------------------------------------------------- Longer than three years 0.00 Commission to financial advisors is 2.50%. Automatic conversion to Class A shares is four years after purchase. ____ 10 Purchases of $500,000 to less than $1 million: Class B Sales Charges % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Commission to financial advisors is 1.75%. Automatic conversion to Class A shares is three years after purchase. If you exchange into a Fund participating in the Class B share discount program or transfer your Fund account from a financial advisor which does not participate in the program to one who does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which cause the exchanged or transferred account to exceed the applicable discount level will receive the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a fund or financial advisor which does not, the exchanged or transferred shares will retain the pre-existing CDSC but all additional purchases of Class B shares will be in accordance with the higher CDSC and longer holding period of the non-participating fund or financial advisor. Class C shares Similar to Class B 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 the financial advisor firm an up-front commission of 1.00% on sales of Class C shares. Class C Sales Charges Years after purchase % deducted when shares are sold Through first year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 ____ 11 HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund distributed by Liberty Funds Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you exchanged. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, (ii) you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. ____ 12 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into the same share class of another Liberty fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- By mail You may send a signed letter of instruction or stock power form along with any share certificates to be sold to the address below. In your letter of instruction, note your Fund's name, share class, account number, and the dollar value or number of shares you wish to sell. All account owners must sign the letter, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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 Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. ____ 13 DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- The Fund has adopted a plan under Rule 12b-1 that permits it to pay the Fund's distributor, marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees may reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after a certain number of years, eliminating a portion of the distribution fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account; Sales Charge" for the conversion schedule applicable to Class B shares. 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 (typically Monday through Friday). 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's firm, the firm must receive your order by the close of trading on the NYSE to receive that day's price. The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. 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 advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. ____ 14 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Fund's transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class B and C shares. Certificates will be issued for Class A shares only if requested. If you decide to hold share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the distributor. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- CapitaL gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345- 6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ____ 15 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. ____ 16 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .90% of the Fund's average daily net assets. Liberty WAM also receives an administrative services fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. John H. Park Lead portfolio manager John Park is a vice president of Liberty Acorn Trust, and has managed Liberty Acorn Twenty since its inception in 1998. He has been a member of the domestic investment team at Liberty WAM and WAM since 1993, and was a principal of WAM from 1998 to September 29, 2000. Mr. Park is also manager of a mutual fund underlying variable insurance products. He is a CFA and earned both his BA and MBA degrees from the University of Chicago. ___ 17 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn Twenty - Principal Investment Strategies" and "Liberty Acorn Twenty - Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund invests in entrepreneurially managed smaller, mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, it likely produce superior flexibility to pursue identifies a price that performance that is strategic objectives and it believes would also sustainable over time. is essential to make the stock a good maintaining a competitive value. advantage. - ------------------------------------------------------------------------------------
___ 18 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 financial performance. Information is shown for the Fund's fiscal year since inception of Class A, Class B and Class C shares. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited and has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn Twenty
Selected data for a share outstanding throughout each period For the Period Ended 12/31/2000 (a) Class A Class B Class C Net Asset Value, Beginning of Period $ 13.47 $13.47 $13.47 ----------------------------------------------------------------------------------- Income from Investment Operations Net investment income (b) .01 (.01) (.01) Net realized and unrealized gain .84 .84 .84 ----------------------------------------------------------------------------------- Total from investment operations .85 .83 .83 ----------------------------------------------------------------------------------- Less Distributions Declared to Shareholders From net investment income (.01) (.01) (.01) From net realized gains (.19) (.19) (.19) ----------------------------------------------------------------------------------- Total distributions delcared to shareholders (.20) (.20) (.20) ----------------------------------------------------------------------------------- Net Asset Value, End of Period $ 14.12 $14.10 $ 14.10 =================================================================================== Total Return (c) (d) 6.32% 6.17% 6.17% ----------------------------------------------------------------------------------- Ratios to Average Net Assets Expenses (e) (f) .76% 1.41% 1.41% Net investment income (e) (f) .23% (.42%) (.42%) Portfolio Turnover 116% 116% 116% Net assets at end of period (000's) $3,267 $4,249 $1,070
(a) Class A, Class B and Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. ___ 20 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - 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-------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn Twenty (formerly Acorn Twenty) - -------------------------------------------------------------------------------- [LETTERHEAD OF LIBERTY FUNDS] - ------------------------------------------------------------------------------- LIBERTY ACORN FOREIGN FORTY Prospectus, May 1, 2001 - ------------------------------------------------------------------------------- Class Z Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured; May Lose Value; No Bank Guarantee ________________________________________________________________________________ T A B L E O F C O N T E N T S LIBERTY ACORN FOREIGN FORTY 2 - ---------------------------------------------------------------- Investment Goal............................................ 2 Principal Investment Strategies............................ 2 Principal Investment Risks................................. 2 Performance History........................................ 5 Your Expenses.............................................. 7 YOUR ACCOUNT 8 - ---------------------------------------------------------------- How to Buy Shares.......................................... 8 Eligible Investors......................................... 9 Sales Charges.............................................. 11 How to Exchange Shares..................................... 11 How to Sell Shares......................................... 11 Fund Policy on Trading of Fund Shares...................... 13 Other Information About Your Account....................... 13 MANAGING THE FUND 16 - ---------------------------------------------------------------- Investment Advisor......................................... 16 Portfolio Managers/The Investment Team..................... 16 OTHER INVESTMENT STRATEGIES AND RISKS 17 - ---------------------------------------------------------------- The Information Edge....................................... 17 Stock Strength Comes First................................. 18 Derivative Strategies...................................... 18 Temporary Defensive Strategies............................. 18 FINANCIAL HIGHLIGHTS 19 - ----------------------------------------------------------------
Liberty Acorn Foreign Forty INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Foreign Forty seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Foreign Forty invests primarily in the stocks of medium- to larger-sized companies based in developed markets (for example, Japan, Canada and United Kingdom) outside the U.S. The Fund invests in at least three countries. The Fund is a non-diversified fund that takes advantage of its advisor'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 purchase. The Fund believes that companies within this capitalization range are not as well known by financial analysts, and may offer higher return potential than the stocks of companies with capitalizations above $25 billion. Liberty Acorn Foreign Forty typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn Foreign Forty is an international fund and invests the majority of its assets in the stocks of foreign companies based in developed markets outside the U.S. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 ___ 2 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. ___ 3 As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore, the Fund may have an increased risk of loss compared to a similar diversified mutual fund. 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. ___ 4 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year since inception. They include the effects of Fund expenses. Average annual total returns are measures of the Fund's performance over the past one-year and life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the SSB World ex-U.S. Cap Range $2-10 Billion Index. The SSB World ex-U.S. Cap Range $2-10 Billion Index is Salomon Smith Barney'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 or expenses and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of broad measures of market performance for one year and life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements. If these arrangements were not 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. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns/(1)/ [BAR CHART]
Year Return - ---- ------ 1999 81.60% 2000 -13.35%
For period shown in bar chart: Best quarter: 4th quarter 1999,+46.65% Worst quarter: 2nd quarter 2000,-14.03% The Fund's year-to-date total return through March 31, 2001 was -20.82%. ___ 5 Average Annual Total Returns-- for periods ended December 31, 2000/(1)/
Inception Date 1 Year Life of the Fund Class Z 11/23/98 - ---------------------------------------------------------------------------------- Return Before Taxes -13.35% 29.75% - ---------------------------------------------------------------------------------- Return After Taxes on Distributions -13.59% 29.52% - ---------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -8.04% 24.32% - ---------------------------------------------------------------------------------- SSB Cap Range $2-10B n/a -6.05% 9.03%
(1) The Fund's performance during 1999 was achieved in a period of unusual market conditions. ___ 6 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - --------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - --------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) .95 - --------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - --------------------------------------------------------------- Other expenses (%) .38 - --------------------------------------------------------------- Total annual fund operating expenses (%) 1.33 - --------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $135 $421 $729 $1,601 ___ 7 Your Account HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an Eligible Investor (described below), your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that your payment has been received and your application is complete, 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. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You may acquire shares by exchanging shares you own in one fund for shares of the same class of shares of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer (existing money from your bank account to your Fund account by account) calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments automatically investment plan from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. - --------------------------------------------------------------------------------
___ 8 ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Eligible Investors are subject to different minimum investment requirements. Eligible Investors and their applicable investment minimums are: $1,000 minimum initial investment . any shareholder (or family member of such shareholder) who owned shares of any of the Liberty Acorn funds on September 29, 2000 (when all of the Trust's then outstanding shares were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; . any trustee of Liberty Acorn Trust, any employee of Liberty WAM, or a member of the family of the trustee or employee; and . any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians, and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has since continued to hold shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment . any client of a broker-dealer or registered investment advisor that recommends Fund shares and charges an asset-based fee; . any insurance company, trust company or bank, which is purchasing shares for its own account; . any endowment, investment company or foundation; and . any client of an investment advisory affiliate of the distributor if the client meets certain criteria established by the distributor and its affiliate. No minimum initial investment . any person investing all or part of the proceeds of a distribution, "roll over" or transfer of assets into a Liberty IRA from any deferred compensation plan which was a shareholder of any of the Liberty Acorn funds on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the Liberty Acorn funds immediately prior to the distribution, transfer or roll over; and . any retirement plan with aggregate assets of at least $5 million at the time it purchases Class Z shares and which is purchasing shares directly from the distributor or through a third party broker-dealer. ___ 9 If you have any questions about your eligibility to purchase Class Z shares of the Fund, please call 1-800-345-6611. If you hold Fund shares through a broker-dealer or other financial institution, your eligibility to purchase Class Z shares may differ depending on that institution's policies. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. ____ 10 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 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 investment 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. SALES CHARGES - -------------------------------------------------------------------------------- Your purchases of Class Z shares are at net asset value, which is the value of a Fund share without any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund or Class A shares of certain other funds distributed by Liberty Funds Distributor, Inc., at net asset value without a sales charge. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. ____ 11 The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - --------------------- ---------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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. - -------------------------------------------------------------------------------- ____ 12 FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- How the Fund's Share Price is Determined The price of a Fund's Class Z shares is 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 (typically Monday through Friday). 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 Fund (or an authorized broker-dealer, financial services company, or other agent, some of whom may charge a fee for their services). 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 an agent, that agent 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 price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of these securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. -------------------- Account Fees. If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Funds' transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. ____ 13 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. 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 Dividend Represents interest and dividends earned from securities held by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ____ 14 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. ____ 15 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .95% of the Fund's average daily net assets. Liberty WAM also receives an administrative fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGER/THE INVESTMENT TEAM - -------------------------------------------------------------------------------- The portfolio manager is responsible for making daily investment decisions. Through August 31, 2001, Marcel P. Houtzager will be the lead portfolio manager of the Fund. Marcel P. Houtzager Lead portfolio manager Marcel Houtzager is a vice president of Liberty Acorn Trust, and has managed Liberty Acorn Foreign Forty since its inception in 1998. He has been a member of the international analytical team at Liberty WAM and WAM since 1992, and was a principal of WAM from 1995 to September 29, 2000. Mr. Houtzager also manages an international mutual fund underlying variable insurance products and the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and a CPA, and earned his BA from Pomona College and his MBA from the University of California at Berkeley. THE INVESTMENT TEAM - -------------------------------------------------------------------------------- Effective September 1, 2001, Liberty WAM will use a team to manage the Fund. Team members will share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member will have one or more particular areas of expertise. The team will be responsible for making daily investment decisions, and will utilize the entire management team's input and advice when making buy and sell determinations. No single individual at Liberty WAM will have primary management responsibilities for the Fund's portfolio securities. ___ 16 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn Foreign Forty-Principal Investment Strategies" and "Liberty Acorn Foreign Forty-Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund invests in entrepreneurially managed smaller, mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------ . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit Once Liberty WAM uncovers . strong demand for margin an attractive company, it product identifies a price that A strong balance sheet it believes would also The realization of this gives management greater make the stock a good growth potential would flexibility to pursue value. likely produce superior strategic objectives and performance that is is essential to sustainable over time. maintaining a competitive advantage. - ------------------------------------------------------------------------------------
___ 17 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 a Fund from achieving its investment goal. ___ 18 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 Z shares since inception. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited. This information has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn Foreign Forty
Inception November 23 Year Ended Through December 31, - ------------------------------------------------------------------------------------------------------------------------------------ For a share outstanding throughout each year 2000 1999 1998 Class Z Class Z Class Z Net Asset Value, beginning of period $ 19.93 $ 11.00 $10.00 Income from Investment Operations: Net investment loss (c) (.11) (.02) (.01) Net realized and unrealized gain (loss) on investments (2.53) 8.98 1.01 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (2.64) 8.96 1.00 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions: (.04) --- --- Dividends from net investment income Distributions from net realized and unrealized gains reportable for federal income taxes (.10) (.03) --- - ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions (.14) (.03) --- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $ 17.15 $ 19.93 $11.00 ==================================================================================================================================== Total return (d) (13.35)% 81.6% 10.0% Ratios/supplemental data: Ratio of expenses to average net assets (a)(c) 1.33% 1.48% 1.73%* Ratio of net investment loss to average net assets (c) (.42)% (.17)% (.78)%* Portfolio turnover rate 79% 60% 90%* Net assets at end of period (in millions) $ 130 $ 107 $ 16
(a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Foreign Forty ratio reflects total expenses prior to the reduction of custodian fees for cash balances it maintains with the custodian ("custodian fees paid indirectly"). This ratio net of custodian fees paid indirectly would have been 1.45% for the period ended December 31, 1998 and the year ended December 31, 1999. (b) Net investment loss per share was based upon the average shares outstanding during the period. (c) Acorn Foreign Forty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1999. Without the reimbursement, the ratio of expenses (prior to custodian fees paid indirectly) to average net assets and the ratio of net investment income to average net assets would have been 2.70% and (1.75%), respectively, for the period ended 12/31/98 and 1.57% and (.26%), respectively, for the year ended 12/31/99. (d) Total return is not annualized for periods less than one year. * Annualized ___ 19 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn Foreign Forty (formerly Acorn Foreign Forty) - -------------------------------------------------------------------------------- [LETTERHEAD OF LIBERTY FUNDS] - -------------------------------------------------------------------------------- LIBERTY ACORN TWENTY Prospectus, May 1, 2001 - -------------------------------------------------------------------------------- Class Z Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured; May Lose Value; No Bank Guarantee ----------------------------------------------------------------------------- TABLE OF CONTENTS LIBERTY ACORN TWENTY 2 - -------------------------------------------------------------------------------- Investment Goal.............................................................. 2 Principal Investment Strategies.............................................. 2 Principal Investment Risks................................................... 2 Performance History.......................................................... 4 Your Expenses................................................................ 6 YOUR ACCOUNT 7 - -------------------------------------------------------------------------------- How to Buy Shares............................................................ 7 Eligible Investors........................................................... 8 Sales Charges................................................................ 10 How to Exchange Shares....................................................... 10 How to Sell Shares........................................................... 10 Fund Policy on Trading of Fund Shares........................................ 12 Other Information About Your Account......................................... 12 MANAGING THE FUND 15 - -------------------------------------------------------------------------------- Investment Advisor........................................................... 15 Portfolio Manager............................................................ 15 OTHER INVESTMENT STRATEGIES AND RISKS 16 - -------------------------------------------------------------------------------- The Information Edge......................................................... 16 Stock Strength Comes First................................................... 17 Derivative Strategies........................................................ 17 Temporary Defensive Strategies............................................... 17 FINANCIAL HIGHLIGHTS 18 - --------------------------------------------------------------------------------
Liberty Acorn Twenty INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Twenty seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Twenty invests primarily in the stocks of medium- to larger-sized U.S. companies. The Fund is a non-diversified fund that takes advantage of its advisor's research and stock-picking capabilities to invest in a limited number of companies (between 20-25) with market capitalizations of $2 billion to $12 billion of the time of purchase, offering the potential to provide above average growth over time. The Fund believes that companies within this capitalization range are not as well known by financial analysts, and may offer higher return potential than the stocks of companies with capitalizations above $12 billion. Liberty Acorn Twenty typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Although the Fund does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 ___ 2 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore, the Fund may have an increased risk of loss compared to a similar diversified mutual fund. 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 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year. They include the effects of Fund expenses. Average annual total returns are measures of the Fund's performance over the past one-year and life of the Fund. They include the effects of Fund expenses. The Fund's returns are compared to the S&P Mid Cap 400 Index. The S&P Mid Cap 400 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 or expenses and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of broad measures of market performance for one year and life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements. If these arrangements were not 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. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns [BAR CHART]
Year Return - ---- ------ 1999 29.30% 2000 11.68%
For period shown in bar chart: Best quarter: 4th quarter 1999, +14.35% Worst quarter: 3rd quarter 1999, -7.13% The Fund's year-to-date total return through March 31, 2001 was -6.86%. Average Annual Total Returns-- for periods ended December 31, 2000 Inception Date 1 Year Life of the Fund Class Z 11/23/98 ------------------------------------------------------------------------------ Return Before Taxes 11.68% 22.99% ------------------------------------------------------------------------------ Return After Taxes on Distributions 8.84% 21.62% ------------------------------------------------------------------------------ Return After Taxes on Distributions and Sale of Fund Shares 8.15% 18.33% ------------------------------------------------------------------------------ S&P Mid Cap 400 n/a 17.51% 21.13% ___ 4 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None --------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None --------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) .90 --------------------------------------------------------------- Distribution and service (12b-1) fees (%) None --------------------------------------------------------------- Other expenses (%) .43 --------------------------------------------------------------- Total annual fund operating expenses (%) 1.33 --------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $135 $421 $729 $1,601 ___ 5 Your Account HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an Eligible Investor (described below), your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that your payment has been received and your application is complete, 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. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. ------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. ------------------------------------------------------------------------------- By exchange You may acquire shares by exchanging shares you own in one fund for shares of the same class of shares of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. ------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. ------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer (existing money from your bank account to your Fund account by account) calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. ------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. ------------------------------------------------------------------------------- ___ 6 ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Funds, directly or by exchange. Eligible Investors are subject to different minimum investment requirements. Eligible Investors and their applicable investment minimums are: $1,000 minimum initial investment . any shareholder (or family member of such shareholder) who owned shares of any of the Liberty Acorn funds on September 29, 2000 (when all of the Trust's then outstanding shares were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; . any trustee of Liberty Acorn Trust, any employee of Liberty WAM, or a member of the family of the trustee or employee; and . any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians, and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has since continued to hold shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment . any client of a broker-dealer or registered investment advisor that recommends Fund shares and charges an asset-based fee; . any insurance company, trust company or bank, which is purchasing shares for its own account; . any endowment, investment company or foundation; and . any client of an investment advisory affiliate of the distributor if the client meets certain criteria established by the distributor and its affiliate. No minimum initial investment . any person investing all or part of the proceeds of a distribution, "roll over" or transfer of assets into a Liberty IRA from any deferred compensation plan which was a shareholder of any of the Liberty Acorn funds on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the Liberty Acorn funds immediately prior to the distribution, transfer or roll over; and . any retirement plan with aggregate assets of at least $5 million at the time it purchases Class Z shares and which is purchasing shares directly from the distributor or through a third party broker-dealer. ___ 7 If you have any questions about your eligibility to purchase Class Z shares of the Fund, please call 1-800-345-6611. If you hold Fund shares through a broker- dealer or other financial institution, your eligibility to purchase Class Z shares may differ depending on that institution's policies. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. ___ 8 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 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 investment 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. SALES CHARGES - -------------------------------------------------------------------------------- Your purchases of Class Z shares are at net asset value, which is the value of a Fund share without any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund or Class A shares of certain other funds distributed by Liberty Funds Distributor, Inc., at net asset value without a sales charge. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. __ 9 The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. ------------------------------------------------------------------------------ By exchange You or your financial advisor may sell shares by exchanging from the Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737. ------------------------------------------------------------------------------ By telephone You or your financial advisor may sell shares 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 1-800-345-6611. ------------------------------------------------------------------------------- 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. ------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. ------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. ------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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. - -------------------------------------------------------------------------------- ____ 10 FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- How the Fund's Share Price is Determined The price of a Fund's Class Z shares is 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 (typically Monday through Friday). 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 Fund (or an authorized broker-dealer, financial services company, or other agent, some of whom may charge a fee for their services). 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 an agent, that agent 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 price 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 not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. -------------------- Account Fees. If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Funds' transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class Z shares. __ 11 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ____ 12 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. __ 13 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .90% of the Fund's average daily net assets. Liberty WAM also receives an administrative fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. John H. Park Lead portfolio manager John Park is a vice president of Liberty Acorn Trust, and has managed Liberty Acorn Twenty since its inception in 1998. He has been a member of the domestic investment team at Liberty WAM and WAM since 1993, and was a principal of WAM from 1998 to September 29, 2000. Mr. Park is also manager of a mutual fund underlying variable insurance products. He is a CFA and earned both his BA and MBA degrees from the University of Chicago. __ 14 Other Investment Strategies and Risks - -------------------------------------------------------------------------------- UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn Twenty - Principal Investment Strategies" and "Liberty Acorn Twenty - Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund invests in entrepreneurially managed smaller, mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies. Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------ . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, it produce superior flexibility to pursue identifies a price that performance that is strategic objectives and is it believes would also sustainable over time. essential to maintaining to make the stock a good a competitive advantage. - -------------------------------------------------------------------------------- ____ 15 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 a Fund from achieving its investment goal. ____ 16 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 Z shares since inception. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited. This information has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn Twenty
Inception November 23 Year Ended December 31, Through December 31, - ----------------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each year 2000 1999 1998 Class Z Class Z Class Z Net asset value, beginning of period $13.70 $10.71 $10.00 Income From Investment Operations Net investment loss (b) (.07) (.08) --- Net realized and unrealized gain on investments 1.59 3.21 .71 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.52 3.13 .71 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Dividends from net investment income (.01) --- --- Distributions from net realized and unrealized gains reportable for federal income taxes (1.08) (.14) --- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.09) (.14) --- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $14.13 $13.70 $10.71 ==================================================================================================================================== Total Return (d) 11.68% 29.3% 7.1% Ratios/Supplemental Data Ratio of expenses to average net assets (a)(c) 1.34% 1.37% 1.41%* Ratio of net investment gain (loss) to average net assets (c) (.52)% (.62)% .22%* Portfolio turnover rate 116% 101% 173%* Net assets at end of period (in millions) $67 $68 $34
(a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Twenty ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.32% for the period ended December 31, 2000, 1.35% for the period ended December 31, 1998 and the year ended December 31, 1999. (b) Net investment loss per share was based upon the average shares outstanding during the period. (c) Acorn Twenty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1999. Without the reimbursement, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have been 1.83% and (.21%), respectively, for the period ended 12/31/98 and 1.41% and (.66%) respectively, for the year ended 12/31/99. (d) Total return is not annualized for periods less than one year. * Annualized ___ 17 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - 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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ___ 19 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn Twenty (formerly Acorn Twenty) - -------------------------------------------------------------------------------- [LETTERHEAD OF LIBERTY FUNDS] - ----------------------------------------------------------------------- LIBERTY ACORN USA Prospectus, May 1, 2001 - ----------------------------------------------------------------------- Class Z Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured May Lose Value No Bank Guarantee ----------------------------------------------------------- T A B L E O F C O N T E N T S LIBERTY ACORN USA 2 - -------------------------------------------------------------- Investment Goal............................................ 2 Principal Investment Strategies............................ 2 Principal Investment Risks................................. 2 Performance History........................................ 4 Your Expenses.............................................. 5 YOUR ACCOUNT 6 - -------------------------------------------------------------- How to Buy Shares.......................................... 6 Eligible Investors......................................... 7 Sales Charges.............................................. 9 How to Exchange Shares..................................... 9 How to Sell Shares......................................... 9 Fund Policy on Trading of Fund Shares...................... 11 Other Information About Your Account....................... 11 MANAGING THE FUND 14 - -------------------------------------------------------------- Investment Advisor......................................... 14 Portfolio Manager.......................................... 14 OTHER INVESTMENT STRATEGIES AND RISKS 15 - -------------------------------------------------------------- The Information Edge....................................... 15 Stock Strength Comes First................................. 16 Derivative Strategies...................................... 16 Temporary Defensive Strategies............................. 16 FINANCIAL HIGHLIGHTS 17 - --------------------------------------------------------------
Liberty Acorn USA INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn USA seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn USA invests primarily 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 $2 billion at the time of 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. Liberty Acorn USA typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor 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 market conditions, will invest at least 65% of its assets in U.S. companies. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. 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 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year since inception. They include the effects of Fund expenses. Average annual total returns are measures of the Fund's performance over the past one-year, three-year and life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the Russell 2000 Index. The Russell 2000 Index is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. Unlike the Fund, an index is not an investment, does not incur fees or expenses, is not subject to taxes, and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of broad measures of market performance for one year, three years and life of the fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns [BAR CHART APPEARS HERE] 1997 32.30% 1998 5.79% 1999 23.02% 2000 -8.99% For period shown in bar chart: The Fund's year-to-date total Best quarter: 4th quarter 1999,+18.93% return through March 31, 2001 Worst quarter: 3rd quarter 1998, -19.25% was 3.56% Average Annual Total Returns -- for periods ended December 31, 2000
Inception Life of the Date 1 Year 3 Years Fund Class Z 9/4/96 - -------------------------------------------------------------------------------- Return Before Taxes -8.99% 5.80% 14.93% - -------------------------------------------------------------------------------- Return After Taxes on Distributions -9.43% 4.40% 13.68% - -------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -5.10% 4.47% 12.15% - -------------------------------------------------------------------------------- Russell 2000 n/a -3.02% 4.65% 10.30%
___ 4 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - --------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - --------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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 the transfer agent. Annual Fund Operating Expenses (deducted directly from Fund assets) Management fees/(3)/ (%) .93 - --------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - --------------------------------------------------------------- Other expenses (%) .21 - --------------------------------------------------------------- Total annual fund operating expenses (%) 1.14 - --------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $116 $362 $628 $1,386 ___ 5 Your Account HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an Eligible Investor (described below), your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that your payment has been received and your application is complete, 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. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You may acquire shares by exchanging shares you own in one fund for shares of the same class of shares of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer (existing money from your bank account to your Fund account by account) calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. - -------------------------------------------------------------------------------- ___ 6 ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Eligible Investors are subject to different minimum investment requirements. Eligible Investors and their applicable investment minimums are: $1,000 minimum initial investment . any shareholder (or family member of such shareholder) who owned shares of any of the Liberty Acorn funds on September 29, 2000 (when all of the Trust's then outstanding shares were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; . any trustee of Liberty Acorn Trust, any employee of Liberty WAM, or a member of the family of the trustee or employee; and . any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians, and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has continued to hold shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment . any client of a broker-dealer or registered investment advisor that recommends Fund shares and charges an asset-based fee; . any insurance company, trust company or bank, which is purchasing shares for its own account; . any endowment, investment company or foundation; and . any client of an investment advisory affiliate of the distributor if the client meets certain criteria established by the distributor and its affiliate. No minimum initial investment . any person investing all or part of the proceeds of a distribution "roll over" or transfer of assets into a Liberty IRA from any deferred compensation plan which was a shareholder of any of the Liberty Acorn funds on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the Liberty Acorn funds immediately prior to the distribution, transfer or roll over. and . any retirement plan with aggregate assets of at least $5 million at the time it purchases Class Z shares and which is purchasing shares directly from the distributor or through a third party broker-dealer. ___ 7 If you have any questions about your eligibility to purchase Class Z shares of the Fund, please call 1-800-345-6611. If you hold Fund shares through a broker-dealer or other financial institution, your eligibility to purchase Class Z shares may differ depending on that institution's policies. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. ___ 8 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 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 investment 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. SALES CHARGES - -------------------------------------------------------------------------------- Your purchases of Class Z shares are at net asset value, which is the value of a Fund share without any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund or Class A shares of certain other funds distributed by Liberty Funds Distributor, Inc., at net asset value without a sales charge. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. ___ 9 The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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. - -------------------------------------------------------------------------------- ___ 10 FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- How the Fund's Share Price is Determined The price of a Fund's Class Z shares is 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 (typically Monday through Friday). 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 Fund (or an authorized broker-dealer, financial services company, or other agent, some of whom may charge a fee for their services). 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 an agent, that agent 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 price 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 not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. Account Fees. If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Funds' transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class Z shares. ___ 11 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 12 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. ___ 13 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .93% of the Fund's average daily net assets. Liberty WAM also receives an administrative fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Robert A. Mohn Lead portfolio manager Robert Mohn is a vice president of Liberty Acorn Trust. He has been a member of the domestic analytical team at Liberty WAM and WAM since 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Liberty Acorn USA since its inception in 1996, and also manages a mutual fund underlying variable insurance products and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and holds a BS from Stanford University and an MBA from the University of Chicago. __ 14 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn USA - Principal Investment Strategies" and "Liberty Acorn USA - Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund 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. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies. Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, it likely produce superior flexibility to pursue identifies a price that performance that is strategic objectives and it believes would also sustainable over time. is essential to make the stock a good maintaining a competitive value. advantage. - -------------------------------------------------------------------------------- ___ 15 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 a Fund from achieving its investment goal. ___ 16 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 Z shares since inception. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited. This information has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn USA
Inception September 4 Through Year ended December 31, December 31, - -------------------------------------------------- -------------------------------------------------------------- ----------------- For a share outstanding throughout each year 2000 1999 1998 1997 1996 Class Z Class Z Class Z Class Z Class Z Net Asset Value, beginning of period $16.75 $14.80 $15.12 $11.65 $10.00 Income From Investment Operations Net investment loss (b) (.05) .00 (.07) (.07) (.02) Net realized and unrealized gain on investments (1.48) 3.32 .87 3.83 1.67 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (1.53) 3.32 .80 3.76 1.65 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions (.00) --- --- --- --- Dividends from net investment income Distributions from net realized and unrealized gains reportable for federal income taxes (.32) (1.37) (1.12) (.29) --- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.32) (1.37) (1.12) (.29) --- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $14.90 $16.75 $14.80 $15.12 $11.65 ==================================================================================================================================== Total Return (c) (8.99)% 23.0% 5.8% 32.3% 16.5% Ratios/Supplemental Data Ratio of expenses to average net assets (a) 1.15% 1.15% 1.20% 1.35% 1.85%/*/ Ratio of net investment gain (loss) to average net assets (.32)% .00% (.42)% (.49)% (.99)%/*/ Portfolio turnover rate 45% 49% 42% 33% 20%/*/ Net assets at end of period (in millions) $ 222 $ 371 $ 281 $ 185 $ 53
(a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn USA ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.79% for the year ended December 31, 1996. (b) Net investment loss per share was based upon the average shares outstanding during each period. (c) Total return is not annualized for periods less than one year. /*/ Annualized ___ 17 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __ 18 Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __ 19 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn USA (formerly Acorn USA) - -------------------------------------------------------------------------------- LIBERTY FUNDS Liberty Funds Distributor, Inc. (c) 2001 One Financial Center, Boston, MA 02111-2621, 800-426-3750 www.libertyfunds.com - ------------------------------------------------------------------------ LIBERTY ACORN INTERNATIONAL Prospectus, May 1, 2001 - ------------------------------------------------------------------------ Class Z Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured; May Lose Value; No Bank Guarantee ------------------------------------------------------------ T A B L E O F C O N T E N T S LIBERTY ACORN INTERNATIONAL 2 - -------------------------------------------------------------- Investment Goal............................................ 2 Principal Investment Strategies............................ 2 Principal Investment Risks................................. 2 Performance History........................................ 5 Your Expenses.............................................. 7 YOUR ACCOUNT 8 - -------------------------------------------------------------- How to Buy Shares.......................................... 8 Eligible Investors......................................... 9 Sales Charges.............................................. 11 How to Exchange Shares..................................... 11 How to Sell Shares......................................... 11 Fund Policy on Trading of Fund Shares...................... 13 Other Information About Your Account....................... 13 MANAGING THE FUND 16 - -------------------------------------------------------------- Investment Advisor......................................... 16 Portfolio Managers......................................... 16 OTHER INVESTMENT STRATEGIES AND RISKS 17 - -------------------------------------------------------------- The Information Edge....................................... 17 Stock Strength Comes First................................. 18 Derivative Strategies...................................... 18 Temporary Defensive Strategies............................. 18 - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 19
Liberty Acorn International INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn International seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn International invests primarily 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 purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that smaller companies - particularly outside the U.S. - that are not as well known by financial analysts may offer higher return potential than the stocks of larger companies. Liberty Acorn International typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give the company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn International is an international fund and invests the majority (under normal market conditions, at least 75%) of its total assets in the stocks of foreign companies based in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. ___ 2 Equity risk 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 equity market tends to move in cycles and 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. 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. ___ 3 Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. 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. ___ 4 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year. They include the effects of Fund expenses. Average annual total returns are measures of the Fund's performance over the past one-year, five-year and life of the Fund periods. They include the effects of Fund expenses. Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. EMI World ex-U.S. is Salomon Smith Barney's index of the bottom 20% of institutionally investable capital of countries, selected by Salomon and excluding the U.S. The EMI Global ex-U.S. is Salomon Smith Barney's index of the bottom 20% of institutionally investable capital of developed and emerging countries as selected by Salomon, excluding the U.S. The EMI Global ex-U.S. is rebalanced once a year in June. Beginning in 2001, the Fund's broad-based securities market index was changed from the EMI World ex-U.S. to the EMI Global ex-U.S., which has a component of emerging countries. The advisor believes the EMI Global ex-U.S. index better aligns with how the Fund invests. Unlike the Fund, indices are not investments, do not incur fees or expenses, are not subject to taxes, and are not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of broad measures of market performance for one year, five years and life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns/(1)/ [BAR CHART]
Year Return ---- ------ 1993 49.11% 1994 -3.80% 1995 8.93% 1996 20.65% 1997 0.19% 1998 15.43% 1999 79.19% 2000 -20.02%
The Fund's year-to-date total return through March 31, 2001 was -12.33%. For period shown in bar chart: Best quarter: 4th quarter 1999, +41.63% Worst quarter: 3rd quarter 1998, -16.05% ___ 5 Average Annual Total Returns-- for periods ended December 31, 2000/(1)/
Inception Life of the Date 1 Year 5 Years /(1)/ Fund Class Z 9/23/92 - ---------------------------------------------------------------------------------------- Return Before Taxes -20.02% 14.87% 15.69% - ---------------------------------------------------------------------------------------- Return After Taxes on Distributions -22.97% 13.08% 14.57% - ---------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -9.72% 12.10% 13.37% - ---------------------------------------------------------------------------------------- EAFE n/a -14.17% 7.13% 9.73% - ---------------------------------------------------------------------------------------- EMI (World ex-U.S.) n/a -10.31% 3.83% 6.87% - ---------------------------------------------------------------------------------------- EMI (Global ex-U.S.) n/a -12.58% 6.00% 5.96%
(1) The Fund's performance in 1999 was achieved during a period of unusual market conditions. ___ 6 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - -------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - -------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) .79 - -------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------- Other expenses (%) .27 - -------------------------------------------------------------- Total annual fund operating expenses (%) 1.06 - -------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $108 $337 $585 $1,294 ___ 7 Your Account HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an Eligible Investor (described below), your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that your payment has been received and your application is complete, 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. - -------------------------------------------------------------------------------- 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You may acquire shares by exchanging shares you own in one fund for shares of the same class of shares of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer (existing money from your bank account to your Fund account by account) calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. - -------------------------------------------------------------------------------- ___ 8 ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Funds, directly or by exchange. Eligible Investors are subject to different minimum investment requirements. Eligible Investors and their applicable investment minimums are: $1,000 minimum initial investment . any shareholder (or family member of such shareholder) who owned shares of any of the Liberty Acorn funds on September 29, 2000 (when all of the Trust's then outstanding shares were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; . any trustee of Liberty Acorn Trust, any employee of Liberty WAM, or a member of the family of the trustee or employee; and . any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians, and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has since continued to hold shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment . any client of a broker-dealer or registered investment advisor that recommends Fund shares and charges an asset-based fee; . any insurance company, trust company or bank, which is purchasing shares for its own account; . any endowment, investment company or foundation; and . any client of an investment advisory affiliate of the distributor if the client meets certain criteria established by the distributor and its affiliate. No minimum initial investment . any person investing all or part of the proceeds of a distribution, "roll over" or transfer of assets into a Liberty IRA from any deferred compensation plan which was a shareholder of any of the Liberty Acorn funds on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the Liberty Acorn funds immediately prior to the distribution, transfer or roll over; and . any retirement plan with aggregate assets of at least $5 million at the time it purchases Class Z shares and which is purchasing shares directly from the distributor or through a third party broker-dealer. ___ 9 If you have any questions about your eligibility to purchase Class Z shares of the Fund, please call 1-800-345-6611. If you hold Fund shares through a broker-dealer or other financial institution, your eligibility to purchase Class Z shares may differ depending on that institution's policies. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. ___ 10 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 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 investment 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. SALES CHARGES - -------------------------------------------------------------------------------- Your purchases of Class Z shares are at net asset value, which is the value of a Fund share without any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share class of another fund or Class A shares of certain other funds distributed by Liberty Funds Distributor, Inc., at net asset value without a sales charge. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. ___ 11 The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. - -------------------------------------------------------------------------------- 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-345-6611. - -------------------------------------------------------------------------------- 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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. - -------------------------------------------------------------------------------- ___ 12 FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- How the Fund's Share Price is Determined The price of a Fund's Class Z shares is 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 (typically Monday through Friday). 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 Fund (or an authorized broker-dealer, financial services company, or other agent, some of whom may charge a fee for their services). 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 an agent, that agent 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 price of each security in its portfolio at the close of each trading day. Because the Fund may hold securities that are traded on foreign exchanges, the value of these securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. Account Fees. If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Funds' transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. ___ 13 UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. 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 Dividend Represents interest and dividends earned from securities held by the Fund net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 14 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. ____ 15 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .79% of the Fund's average daily net assets. Liberty WAM also receives an administrative fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Leah J. Zell Lead portfolio manager Leah Zell is a vice president of Liberty Acorn Trust, and was a principal of WAM before its acquisition by Liberty. She has managed Liberty Acorn International since its inception in 1992, and was named lead portfolio manager in 1997. She has worked with Liberty Acorn Fund's international securities since 1984. Ms. Zell also manages the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. She is a CFA and earned her BA and PhD from Harvard University. ____ 16 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER iNVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn International - Principal Investment Strategies" and "Liberty Acorn International - Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund invests in entrepreneurially managed smaller, mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------ --------------------------- --------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet gives Once Liberty WAM uncovers growth potential would management greater flexibility an attractive company, it likely produce superior to pursue strategic objectives identifies a price that it performance that is sus- and is essential to maintaining believes would also make tainable over time. a competitive advantage. the stock a good value.
____ 17 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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. DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 a Fund from achieving its investment goal. ____ 18 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. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited. This information has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn International
For a share outstanding throughout each year 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ Class Z Class Z Class Z Class Z Class Z Net Asset Value, beginning of year $35.33 $20.82 $18.39 $19.61 $16.59 Income From Investment Operations Net investment income .01 .83 .17 .40 .13 Net realized and unrealized gain (loss) on investments (6.73) 15.45 2.68 (.34) 3.29 - ------------------------------------------------------------------------------------------------------------------------ Total from investment operations (6.72) 16.28 2.85 .06 3.42 Less distributions Dividends from net investment income (.66) (.22) (.15) (.38) (.12) Distributions from net realized and unrealized gains reportable for federal income taxes (4.10) (1.55) (.27) (.90) (.28) - ------------------------------------------------------------------------------------------------------------------------ Total distributions (4.76) (1.77) (.42) (1.28) (.40) - ------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of year $23.85 $35.33 $20.82 $18.39 $19.61 ======================================================================================================================== Total Return (20.02)% 79.2% 15.4% 0.2% 20.7% Ratios/Supplemental Data Ratio of expenses to average net assets 1.05% 1.11% 1.12% 1.19% 1.17% Ratio of net investment income to average net assets .02% .12% .86% .58% .51% Portfolio turnover rate 63% 46% 37% 39% 34% Net assets at end of period (in millions) $2,459 $2,868 $1,725 $1,623 $1,773
FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn International (formerly Acorn International) [LETTERHEAD OF LIBERTY FUNDS] - ------------------------------------------------------------------------ LIBERTY ACORN TRUST Prospectus, May 1, 2001 - ------------------------------------------------------------------------ . LIBERTY ACORN FUND . LIBERTY ACORN INTERNATIONAL . LIBERTY ACORN USA . LIBERTY ACORN TWENTY . LIBERTY ACORN FOREIGN FORTY Class Z Shares Advised by Liberty Wanger Asset Management, L.P. 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 Insured; May Lose Value; No Bank Guarantee
------------------------------- T A B L E O F C O N T E N T S LIBERTY ACORN FUND 2 - -------------------------------------------------------------- Investment Goal......................................... 2 Principal Investment Strategies......................... 2 Principal Investment Risks.............................. 2 Performance History..................................... 5 Your Expenses........................................... 6 LIBERTY ACORN INTERNATIONAL 7 - -------------------------------------------------------------- Investment Goal......................................... 7 Principal Investment Strategies......................... 7 Principal Investment Risks.............................. 7 Performance History..................................... 9 Your Expenses........................................... 10 LIBERTY ACORN USA 11 - -------------------------------------------------------------- Investment Goal......................................... 11 Principal Investment Strategies......................... 11 Principal Investment Risks.............................. 11 Performance History..................................... 13 Your Expenses........................................... 14 LIBERTY ACORN TWENTY 15 - -------------------------------------------------------------- Investment Goal......................................... 15 Principal Investment Strategies......................... 15 Principal Investment Risks.............................. 15 Performance History..................................... 17 Your Expenses........................................... 18 LIBERTY ACORN FOREIGN FORTY 19 - -------------------------------------------------------------- Investment Goal......................................... 19 Principal Investment Strategies......................... 19 Principal Investment Risks.............................. 19 Performance History..................................... 22 Your Expenses........................................... 23 YOUR ACCOUNT 24 - -------------------------------------------------------------- How to Buy Shares....................................... 24 Eligible Investors...................................... 25 Sales Charges........................................... 27 How to Exchange Shares.................................. 27 How to Sell Shares...................................... 27 Fund Policy on Trading of Fund Shares................... 29 Other Information About Your Account.................... 30 MANAGING THE FUNDS 33 - -------------------------------------------------------------- Investment Advisor...................................... 33 Portfolio Managers...................................... 33 OTHER INVESTMENT STRATEGIES AND RISKS 36 - -------------------------------------------------------------- The Information Edge.................................... 36 Stock Strength Comes First.............................. 37 Derivative Strategies................................... 37 Temporary Defensive Strategies.......................... 37 FINANCIAL HIGHLIGHTS 38 - --------------------------------------------------------------
Liberty Acorn Fund INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Fund invests primarily in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $2 billion at the time of 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. Liberty Acorn Fund typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. ___ 2 Equity risk 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 equity market tends to move in cycles and 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. 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. ___ 3 Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. 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. ___ 4 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 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 500 Index and the Russell 2000 Index. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Russell 2000 Index is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. Unlike the Fund, indices are not investments, do not incur fees or expenses, are not subject to taxes, and are not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual 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 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. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar-Year Total Returns (Class Z)
[BAR CHART] Year Return ---- ------ 1991 47.35% 1992 24.23% 1993 32.32% 1994 -7.45% 1995 20.80% 1996 22.55% 1997 24.98% 1998 6.02% 1999 33.38% 2000 10.06%
For period shown in bar chart: Best quarter: 4th quarter 1999, +21.94% Worst quarter: 3rd quarter 1998, +19.51% The Fund's year-to-date total return through March 31, 2001 was -5.17%. Average Annual Total Returns-- for periods ended December 31, 2000
Inception Date 1 Year 5 Years 10 Years - ---------------------------------------------------------------------------------------------- Class Z 6/10/70 - ---------------------------------------------------------------------------------------------- Return Before Taxes - 10.06% 18.97% 20.50% - ---------------------------------------------------------------------------------------------- Return After Taxes on Distributions - 6.24% 15.70% 17.95% - ---------------------------------------------------------------------------------------------- Return After Taxes on Distributions and - Sale of Fund Shares 8.90% 15.00% 17.05% - ---------------------------------------------------------------------------------------------- S&P 500 n/a -9.10% 18.33% 17.46% - ---------------------------------------------------------------------------------------------- Russell 2000 n/a -3.02% 10.31% 15.53%
___ 5 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . Fund operating expenses remain the same . Assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - -------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - -------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) .68 - -------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------- Other expenses (%) .15 - -------------------------------------------------------------- Total annual fund operating expenses (%) .83 - -------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $85 $265 $480 $1,025 ___ 6 Liberty Acorn International INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn International seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn International invests primarily 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 purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that smaller companies -- particularly outside the U.S. -- that are not as well known by financial analysts may offer higher return potential than the stocks of larger companies. Liberty Acorn International typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty 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." 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 advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended ___ 7 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. 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. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. 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. ___ 8 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year since it commenced operations. They include the effects of Fund expenses. Average annual total returns are a measure of the Fund's performance over the past one-year, five-year and life of the Fund periods. They include the effects of Fund expenses. Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. EMI World ex-U.S. is Salomon Smith Barney's index of the bottom 20% of institutionally investable capital of countries, selected by Salomon and excluding the U.S. The EMI Global ex-U.S. is Salomon Smith Barney's index of the bottom 20% of institutionally investable capital of developed and emerging countries as selected by Salomon, excluding the U.S. The EMI Global ex-U.S. is rebalanced once a year in June. Beginning in 2001, the Fund's broad-based securities market index was changed from the EMI World ex-U.S. to the EMI Global ex-U.S., which has a component of emerging countries. The advisor believes the EMI Global ex-U.S. index better aligns with how the Fund invests. Unlike the Fund, indices are not investments, do not incur fees or expenses, are not subject to taxes, and are not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of broad measures of market performance for one year, five years and the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns (Class Z)/(1)/
[BAR CHART] Year Return ---- ------ 1993 49.11% 1994 -3.80% 1995 8.93% 1996 20.65% 1997 0.19% 1998 15.43% 1999 79.19% 2000 -20.02%
For period shown in bar chart: Best quarter: 4th quarter 1999, +41.63% Worst quarter: 3rd quarter 1998, -16.05% The Fund's year-to-date total return through March 31, 2001, was -12.33%. Average Annual Total Returns-- for periods ended December 31, 2000/(1)/
Inception Life of Date 1 Year 5 Years/(1)/ the Fund - ----------------------------------------------------------------------------------------------- Class Z 9/23/92 - ----------------------------------------------------------------------------------------------- Return Before Taxes -20.02% 14.87% 15.69% - ----------------------------------------------------------------------------------------------- Return After Taxes on Distributions -22.97% 13.08% 14.57% - ----------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -9.72% 12.10% 13.37% - ----------------------------------------------------------------------------------------------- EAFE n/a -14.17% 7.13% 9.73% - ----------------------------------------------------------------------------------------------- EMI (World ex-U.S.) -10.31% 3.83% 6.87% - ----------------------------------------------------------------------------------------------- EMI (Global ex-U.S.) n/a -12.58% 6.00% 5.96%
(1) The Fund's performance in 1999 was achieved during a period of unusual market conditions. ___ 9 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . Fund operating expenses remain the same . Assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - ------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - ------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) .79 - -------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------- Other expenses (%) .27 - -------------------------------------------------------------- Total annual fund operating expenses (%) 1.06 - -------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $108 $337 $585 $1,294 ___ 10 Liberty Acorn USA INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn USA seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn USA invests primarily 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 $2 billion at the time of 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. Liberty Acorn USA typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor 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 market conditions, will invest at least 65% of its assets in U.S. companies. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 ___ 11 from factors affecting individual companies, industries or the securities market as a whole. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. 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. ___ 12 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year since it commenced operations. They include the effects of Fund expenses. Average annual total returns are a measure of the Fund's performance over the past one-year, three-year and life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the Russell 2000 Index. The Russell 2000 Index is a market-weighted index, with dividends reinvested, of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. Unlike the Fund, an index is not an investment, does not incur fees or expenses, is not subject to taxes, and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of a broad measure of market performance for one year, three years and the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns
[BAR CHART] Year Return ---- ------ 1997 32.30% 1998 5.79% 1999 23.02% 2000 -8.99%
For period shown in bar chart: Best quarter: 4th quarter 1999, +18.93% Worst quarter: 3rd quarter 1998, -19.25% The Fund's year-to-date total return through March 31, 2001 was 3.56%. Average Annual Total Returns-- for periods ended December 31, 2000
Inception Life of Date 1 Year 3 Years the Fund - ----------------------------------------------------------------------------------------------- Class Z 9/4/96 - ----------------------------------------------------------------------------------------------- Return Before Taxes -8.99% 5.80% 14.93% - ----------------------------------------------------------------------------------------------- Return After Taxes on Distributions -9.43% 4.40% 13.68% - ----------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -5.10% 4.47% 12.15% - ----------------------------------------------------------------------------------------------- Russell 2000 n/a -3.02% 4.65% 10.30%
___ 13 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . Fund operating expenses remain the same . Assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - -------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - -------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed, if applicable) (1) A $10 annual fee is 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/(3)/ (%) .93 - -------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------- Other expenses (%) .21 - -------------------------------------------------------------- Total annual fund operating expenses (%) 1.14 - -------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $116 $362 $628 $1,386 ___ 14 Liberty Acorn Twenty INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Twenty seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Twenty invests primarily in the stocks of medium- to larger-sized U.S. companies. The Fund is a non-diversified fund that takes advantage of its advisor's research and stock-picking capabilities to invest in a limited number of companies (between 20-25) with market capitalizations of $2 billion to $12 billion at the time of purchase, offering the potential to provide above-average growth over time. The Fund believes that companies within this capitalization range are not as well known by financial analysts, and may offer higher return potential than the stocks of companies with capitalizations above $12 billion. Liberty Acorn Twenty typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Although the Fund does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 ___ 15 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore, the Fund may have an increased risk of loss compared to a similar diversified mutual fund. 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. ___ 16 UNDERSTANDING PERFORMANCE Calendar year total returns show the Fund's Class Z share performance for each completed calendar year since it commenced operations. They include the effects of Fund expenses. Average annual total returns are a measure of the Fund's performance over the past one-year and the life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the S&P MidCap 400 Index. The S&P MidCap 400 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 or expenses, is not subject to taxes, and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's performance for the past year by illustrating the Fund's calendar year total return for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of a broad measure of market performance for one year and the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements. If these arrangements were not in place, then the performance results 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. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns
[BAR CHART] Year Return ---- ------ 1999 29.30% 2000 11.68%
For period shown in bar chart: Best quarter: 4th quarter 1999, + 14.35% Worst quarter: 3rd quarter 1999, -7.13% The Fund's year-to-date total return through March 31, 2001 was -6.86%. Average Annual Total Returns-- for periods ended December 31, 2000 Inception Life of Date 1 Year the Fund - -------------------------------------------------------------------------------- Class Z 11/23/98 - -------------------------------------------------------------------------------- Return Before Taxes 11.68% 22.99% - -------------------------------------------------------------------------------- Return After Taxes on Distributions 8.84% 21.62% - -------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 8.15% 18.33% - -------------------------------------------------------------------------------- S&P MidCap 400 n/a 17.51% 21.13% ___ 17 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . Fund operating expenses remain the same . Assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - --------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - --------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) 0.90 - --------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - --------------------------------------------------------------- Other expenses (%) 0.43 - --------------------------------------------------------------- Total annual fund operating expenses (%) 1.33 - --------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $135 $421 $729 $1,601 ___ 18 Liberty Acorn Foreign Forty INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Foreign Forty seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Foreign Forty invests primarily in the stocks of medium- and larger-sized companies based in developed markets (for example, Japan, Canada and United Kingdom) outside the U.S. The Fund invests in at least three countries. The Fund is a non-diversified Fund that takes advantage of its advisor'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 billion to $25 billion at the time of purchase. The Fund believes that companies within this capitalization range are not as well known by financial analysts, and may offer higher return potential than the stocks of companies with capitalizations above $25 billion. Liberty Acorn Foreign Forty typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn Foreign Forty is an international fund and invests the majority of its assets in the stocks of foreign companies based in developed markets outside the U.S. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended ___ 19 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. ___ 20 As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore, the Fund may have an increased risk of loss compared to a similar diversified mutual fund. 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. ___ 21 Understanding Performance Calendar year total returns show the Fund's Class Z share performance for each completed calendar year since it commenced operations. They include the effects of Fund expenses. Average annual total returns are a measure of the Fund's performance over the past one-year and the life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the SSB Cap Range $2-10B Index. The SSB World ex-U.S. Cap Range $2-10 Billion Index is Salomon Smith Barney'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 or expenses, is not subject to taxes, and is not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance for the past year by illustrating the Fund's calendar year total return for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of a broad measure of market performance for one year and the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements were not in place, then the performance results 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. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns [BAR CHART] Year Return ---- ------ 1999 81.60% 2000 -13.35% For period shown in bar chart: Best quarter: 4th quarter 1999, +46.65% Worst quarter: 2nd quarter 2000, -14.03% The Fund's year-to-year total return through March 31, 2001 was -20.82%. Average Annual Total Returns-- for periods ended December 31, 2000
Life of Inception the Fund Date 1 Year (1) - --------------------------------------------------------------------------------- Class Z 11/23/98 - --------------------------------------------------------------------------------- Return Before Taxes -13.35% 29.75% - --------------------------------------------------------------------------------- Return After Taxes on Distributions -13.59% 29.52% - --------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -8.04% 24.32% - --------------------------------------------------------------------------------- SSB Cap Range $2-10B n/a -6.05% 9.03%
(1) The Fund's performance in 1999 was achieved during a period of unusual market conditions. ___ 22 Understanding Expenses Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . Fund operating expenses remain the same . Assumes reinvestment of all dividends and distributions 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. Shareholder Fees(1)(2) (paid directly from your investment) Maximum sales charge (load) on purchases None - -------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - -------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed)
(1) A $10 annual fee is 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(3) (%) 0.95 - -------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------- Other expenses (%) 0.38 - -------------------------------------------------------------- Total annual fund operating expenses (%) 1.33 - --------------------------------------------------------------
(3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $135 $421 $729 $1,601 ___ 23 Your Account How to Buy Shares - -------------------------------------------------------------------------------- If you are an Eligible Investor your shares will be bought at the next calculated price (described below), after the Fund receives your purchase request in "good form." "Good form" means that your payment has been received and your application is complete, including all necessary signatures. The Funds reserve the right to refuse a purchase order for any reason, including if a Fund believes that doing so would be in the best interest of the Funds and its shareholders. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. - -------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By exchange You may acquire shares by exchanging shares you own in one Fund for shares of the same class of another Liberty Acorn Fund at no additional cost. You also may exchange your Class Z shares of a Fund for Class Z or, if there are no Class Z shares, Class A shares of certain other funds distributed by Liberty Funds Distributor, Inc., at net asset value without a sales charge. See the SAI for a listing of the funds currently available. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-962-1585. - -------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-962-1585 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares by electronically transferring transfer (existing money from your bank account to your Fund account by account) calling 1-800-962-1585. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification Liberty Acorn Fund into the same class of shares of another Liberty Acorn Fund at no additional sales charge. To invest your dividends in another Fund, call 1-800-962- 1585. - -------------------------------------------------------------------------------- ___ 24 Eligible Investors - ------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Funds, directly or by exchange. Eligible Investors are subject to different minimum investment requirements. Eligible Investors and their applicable investment minimums are: $1,000 minimum initial investment . any shareholder (or family member of such shareholder) who owned shares of any of the Liberty Acorn funds on September 29, 2000 (when all of the Trust's then outstanding shares were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; . any trustee of Liberty Acorn Trust, any employee of Liberty WAM, or a member of the family of the trustee or employee; and . any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians, and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has since then continued to hold shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment . any client of a broker-dealer or registered investment advisor that recommends Fund shares and charges an asset-based fee; . any insurance company, trust company or bank, which is purchasing shares for its own account; . any endowment, investment company or foundation; and . any client of an investment advisory affiliate of the distributor if the client meets certain criteria established by the distributor and its affiliate. No minimum initial investment . any person investing all or part of the proceeds of a distribution, "roll over" or transfer of assets into a Liberty IRA from, any deferred compensation plan which was a shareholder of any of the Liberty Acorn funds on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the Liberty Acorn funds immediately prior to the distribution, transfer or roll over; and . any retirement plan with aggregate assets of at least $5 million at the time it purchases Class Z shares and which is purchasing shares directly from the distributor or through a third party broker-dealer. ___ 25 If you have any questions about your eligibility to purchase Class Z shares of the Fund, please call 1-800-962-1585. If you hold Fund shares through a broker-dealer or other financial institution, your eligibility to purchase Class Z shares may differ depending on that institution's policies. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. ___ 26 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 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 investment 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. Sales Charges - -------------------------------------------------------------------------------- Your purchases of Class Z shares are at net asset value, which is the value of a Fund share without any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. If you purchase Class Z shares of the Funds through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Funds offer. There are no sales charges or limitations if you purchase shares directly from the Funds, except as described in this prospectus. If an intermediary is an agent or designee of the Funds, 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 Class Z shares of the Funds for shares of another Fund at no additional charge. 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 Liberty Funds Distributor, Inc., at net asset value without a sales charge. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Funds may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Funds. To exchange by telephone, call 1-800-962-1585. How to Sell Shares - -------------------------------------------------------------------------------- Your financial advisor can help you determine if and when you should sell your shares. You may sell shares of a Fund on any regular business day that the New York Stock Exchange (NYSE) is open. When a Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-962-1585. Retirement plan accounts have special requirements; please call 1-800-962-1585 for more information. ___ 27 A 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, a Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from a Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-962-1585. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares 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 1-800-962-1585. - -------------------------------------------------------------------------------- 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. Additional documentation is required for sales by corporations, agents, fiduciaries, surviving joint owners and individual retirement account owners. For details, call 1-800-962- 1585. Mail your letter of instruction to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. - -------------------------------------------------------------------------------- By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. All dividend and capital gains distributions must be reinvested. This feature is not available if you hold your shares in certificate form. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares and request that the proceeds be funds transfer 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. - -------------------------------------------------------------------------------- ___ 28 Fund policy on trading of fund shares - -------------------------------------------------------------------------------- The Funds do not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Funds, the Funds reserve the right to reject any purchase order to promote the best interests of the Funds, the Funds reserve the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Funds. The Fund into which you would like to exchange also may reject your request. Other Information About Your Account - -------------------------------------------------------------------------------- How the Funds' Share Price is Determined The price of a Fund's Class Z Shares is 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 (typically Monday through Friday). 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 Liberty Acorn (or an authorized broker-dealer, financial services company, or other agent, some of whom may charge a fee for their services). In most cases, in order to receive that day's price, Liberty Acorn must receive your order before that day's transactions are processed. If you request a transaction through an agent, that agent must receive your order by the close of trading on the NYSE to receive that day's price. A 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 price of each security in its portfolio at the close of each trading day. Because Liberty Acorn Fund, Liberty Acorn International and Liberty Acorn Foreign Forty may hold securities that are traded on foreign exchanges, the value of these Funds' securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Funds in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Funds' web site at www.acornfunds.com. ------------------ Account Fees. If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Funds' transfer agent will send you written notification of the upcoming fee. If ___ 29 you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. Share Certificates Share certificates are not available for Class Z shares. ___ 30 UNDERSTANDING FUND DISTRIBUTIONS Each Fund earns income from the securities it holds. Each Fund also may realize capital gains and losses on sales of its securities. A Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of your Fund's income and capital gains based on the number of shares you own at the time these distributions are declared. Dividends, Distributions, and Taxes Each Fund has the potential to make the following distributions: - -------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------- Dividend Represents interest and dividends earned from securities held by a 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 Each Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-962-1585. If you do not indicate on your application your preference for handling distributions, a Fund will automatically reinvest all distributions in additional shares of the Fund. - -------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------- Reinvest all distributions in additional shares of your current fund - -------------------------------------------------------------------------- Reinvest all distributions in shares of another Fund - -------------------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains - -------------------------------------------------------------------------- Receive all distributions in cash (with one of the following options): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 a Fund may have additional personal tax implications. Please consult your tax advisor on foreign, federal, state, local or other applicable tax laws. ___ 31 In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. Foreign Income Taxes A Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If your Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce that Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by Liberty Acorn International or Liberty Acorn Foreign Forty. ___ 32 Managing the Funds INVESTMENT ADVISOR ------------------------------------------------ Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Funds' investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Funds, since 1992. In its duties as investment advisor, Liberty WAM runs the Funds' day-to-day business, including placing all orders for the purchase and sale of the Funds' portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM earns the following advisory fees for managing the Funds. ------------------------------------------------- Fund Name Fund Fee as a % of Average Net Assets During 2000 ------------------------------------------------- Liberty Acorn Fund .68% Liberty Acorn International .79% Liberty Acorn USA .93% Liberty Acorn Twenty .90% Liberty Acorn Foreign Forty .95% Liberty WAM also receives an administrative services fee from each Fund at the annual rate of .05% of that Fund's average daily net assets. PORTFOLIO MANAGERS ------------------------------------------------- Liberty WAM uses a team to manage the Funds. Team members share responsibility for providing ideas, information, and knowledge in managing the Funds, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily portfolio selection decisions, and utilize the management team's input and advice when making buy and sell determinations. Effective September 1, 2001, Marcel P. Houtzager will no longer be the lead portfolio manager of Liberty Acorn Foreign Forty. As of this date, Liberty WAM will use a team to manage Liberty Acorn Foreign Forty. The team will be responsible for making daily investment decisions, and will utilize the entire management team's input and advice when making buy and sell determinations. No single individual at Liberty WAM will have primary management responsibilities for the Fund's portfolio securities. Ralph Wanger Liberty Acorn Fund, Lead portfolio manager Ralph Wanger is chief strategist of the Liberty Acorn Funds and has been portfolio manager of Liberty Acorn Fund since its inception in 1970. He is president and a member of Liberty Acorn Trust's Board of Trustees since 1970. Mr. Wanger is president of Liberty WAM since September 29, 2000 and was a principal of WAM before that date. He is a Chartered Financial Analyst (CFA), and earned his BS and MS degrees in Industrial Management from the Massachusetts Institute of Technology. ___ 33 Managing the Fund Charles P. McQuaid Liberty Acorn Fund, Co-portfolio manager Charles McQuaid is a senior vice president and member of Liberty Acorn Trust's Board of Trustees. He is the director of Domestic Research at Liberty WAM and WAM, and was a principal of WAM until September 29, 2000. Mr. McQuaid has been a member of Liberty Acorn Fund's management team since 1978. He is a CFA, and earned his BBA from the University of Massachusetts and his MBA from the University of Chicago. Leah J. Zell Liberty Acorn International, Lead portfolio manager Leah Zell is a vice president of Liberty Acorn Trust, and was a principal of WAM before its acquisition by Liberty. She has managed Liberty Acorn International since its inception in 1992, and was named lead portfolio manager in 1997. She has worked with Liberty Acorn Fund's international securities since 1984. Ms. Zell also manages the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. She is a CFA and earned her BA and PhD from Harvard University. Robert A. Mohn Liberty Acorn USA, Lead portfolio manager Robert Mohn is a vice president of Liberty Acorn Trust. He has been a member of the domestic analytical team at Liberty WAM and WAM since 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Liberty Acorn USA since its inception in 1996, and also manages a mutual fund underlying variable insurance products and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and holds a BS from Stanford University and an MBA from the University of Chicago. John H. Park Liberty Acorn Twenty, Lead portfolio manager John Park is a vice president of Liberty Acorn Trust, and has managed Liberty Acorn Twenty since its inception in 1998. He has been a member of the domestic investment team at Liberty WAM and WAM since 1993, and was a principal of WAM from 1998 to September 29, 2000. Mr. Park is also manager of a mutual fund underlying variable insurance products. He is a CFA and earned both his BA and MBA degrees from the University of Chicago. Marcel P. Houtzager Liberty Acorn Foreign Forty, Lead portfolio manager through August 31, 2001 Marcel Houtzager is a vice president of Liberty Acorn Trust, and has managed Liberty Acorn Foreign Forty since its inception in 1998. He has been a member of the international analytical team at Liberty WAM and WAM since 1992, and was a principal of WAM from 1995 to September 29, 2000. Mr. Houtzager also manages an international mutual fund underlying variable insurance products and the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. ___ 34 He is a CFA and a CPA, and earned his BA from Pomona College and his MBA from the University of California at Berkeley. ___ 35 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- UNDERSTANDING THE FUNDS' OTHER INVESTMENT STRATEGIES AND RISKS The principal investment strategies and risks for each Fund are described under "The Funds - Principal Investment Strategies" and "The Funds - Principal Investment Risks." In seeking to meet its investment goal, a Fund may also invest in other securities and use certain investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help a Fund achieve its investment goal. A Fund may not always achieve its investment goal. Additional information about each Fund's securities and investment techniques, as well as its fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Funds' principal investment strategies and their associated risks are described above. This section provides more detail about the Funds' investment strategies, and describes other investments a Fund may make and the risks associated with them. In seeking to achieve its investment goal, a 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 are identified and discussed in the Funds' Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Funds' shareholders is not required to modify or change the Funds' investment goals or investment strategies. THE INFORMATION EDGE - ------------------------------------------------------------------------------- The Funds invest in entrepreneurially managed smaller, mid-sized and larger companies that they believe are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. In making investments for the Funds, Liberty WAM 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, Liberty WAM looks for growth potential, financial strength and fundamental value. Liberty WAM 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. Growth Potential Financial Strength Fundamental Value - -------------------------------------------------------------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product A strong balance sheet Once Liberty WAM uncovers The realization of this gives management greater an attractive company, it growth potential would flexibility to pursue identifies a price that likely produce superior strategic objectives and it believes would also performance that is is essential to make the stock a good sustainable over time. maintaining a value. competitive advantage. - -------------------------------------------------------------------------------- ___ 36 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM's analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Funds, Liberty WAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least 2-5 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 - -------------------------------------------------------------------------------- A Fund may enter into a number of hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM may determine that adverse market conditions make it desirable to temporarily suspend a Fund's normal investment activities. During such times, a 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 a Fund from achieving its investment goal. ___ 37 Financial Highlights The financial highlights tables are intended to help you understand the Funds' financial performance. Information is shown for each Fund's last five fiscal years or since the Fund's inception. The Funds' fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in each table represent the rate that you would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). The information with respect to the last five fiscal years is audited. This information has been derived from the Funds' financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Funds' audited financial statements, is included in the Funds' annual report. You can request a free annual report by calling 1-800-9-ACORN-9 (800-922-6769). Liberty Acorn Fund
For a share outstanding throughout each year 2000 1999 1998 1997 1996 Class Z Class Z Class Z Class Z Class Z Net Asset Value, beginning of year $18.53 $16.85 $16.99 $15.04 $13.60 Income From Investment Operations Net investment income .10 .09 .04 .15 .09 Net realized and unrealized gain on investments, foreign currency and futures 1.55 5.22 .91 3.57 2.93 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.65 5.31 .95 3.72 3.02 Less Distributions Dividends from net investment income (.12) (.09) (.03) (.16) (.11) Distributions from net realized and unrealized gains reportable for federal income taxes (2.85) (3.54) (1.06) (1.61) (1.47) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (2.97) (3.63) (1.09) (1.77) (1.58) - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $17.21 $18.53 $16.85 $16.99 $15.04 =========================================================================================================================== Total Return 10.06% 33.4% 6.0% 25.0% 22.6% Ratios/Supplemental Data Ratio of expenses to average net assets .83% .85% .84% .56% .57% Ratio of net investment income to average net assets .55% .49% .30% .75% .53% Portfolio turnover rate 29% 34% 24% 32% 33% Net assets at end of period (in millions) $3,983 $3,921 $3,549 $3,681 $2,842
___ 38 Liberty Acorn International
For a share outstanding throughout each year 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Class Z Class Z Class Z Class Z Class Z Net asset value, beginning of year $ 35.33 $20.82 $18.39 $19.61 $16.59 Income From Investment Operations: Net investment income .01 .83 .17 .40 .13 Net realized and unrealized gain (loss) on investments (6.73) 15.45 2.68 (.34) 3.29 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations (6.72) 16.28 2.85 .06 3.42 Less Distributions Dividends from net investment income (.66) (.22) (.15) (.38) (.12) Distributions from net realized and unrealized gains reportable for federal income taxes (4.10) (1.55) (.27) (.90) (.28) - -------------------------------------------------------------------------------------------------------------------------- Total distributions (4.76) (1.77) (.42) (1.28) (.40) - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $ 23.85 $35.33 $20.82 $18.39 $19.61 ========================================================================================================================== Total Return (20.02)% 79.2% 15.4% 0.2% 20.7% Ratios/Supplemental Data Ratio of expenses to average net assets 1.05% 1.11% 1.12% 1.19% 1.17% Ratio of net investment income to average net assets .02% .12% .86% .58% .51% Portfolio turnover rate 63% 46% 37% 39% 34% Net assets at end of period (in millions) $ 2,459 $2,868 $1,725 $1,623 $1,773
___ 39 Liberty Acorn USA
Inception September 4 Through Year ended December 31, December 31, - ------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each year 2000 1999 1998 1997 1996 Class Z Class Z Class Z Class Z Class Z Net asset value, beginning of period $16.75 $14.80 $15.12 $11.65 $10.00 Income From Investment Operations: Net investment loss (b) (.05) .00 (.07) (.07) (.02) Net realized and unrealized gain on investments (1.48) 3.32 .87 3.83 1.67 - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations (1.53) 3.32 .80 3.76 1.65 - ------------------------------------------------------------------------------------------------------------------------- Less Distributions (.00) --- --- --- --- Dividends from net investment income Distributions from net realized and unrealized gains reportable for federal income taxes (.32) (1.37) (1.12) (.29) --- - ------------------------------------------------------------------------------------------------------------------------- Total distributions (.32) (1.37) (1.12) (.29) --- - ------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $14.90 $16.75 $14.80 $15.12 $11.65 ========================================================================================================================= Total Return (c) (8.99)% 23.0% 5.8% 32.3% 16.5% Ratios/Supplemental Data Ratio of expenses to average net assets (a) 1.15% 1.15% 1.20% 1.35% 1.85%* Ratio of net investment gain (loss) to average net assets (.32)% .00% (.42)% (.49)% (.99)%* Portfolio turnover rate 45% 49% 42% 33% 20%* Net assets at end of period (in millions) $ 222 $ 371 $ 281 $ 185 $ 53
(a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn USA ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.79% for the year ended December 31, 1996. (b) Net investment loss per share was based upon the average shares outstanding during each period. (c) Total return is not annualized for periods less than one year. * Annualized ___ 40 Liberty Acorn Twenty
Inception November 23 Year Ended December 31, Through December 31, - --------------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each year 2000 1999 1998 Class Z Class Z Class Z Net asset value, beginning of period $13.70 $10.71 $10.00 Income From Investment Operations Net investment loss (b) (.07) (.08) --- Net realized and unrealized gain on investments 1.59 3.21 .71 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations 1.52 3.13 .71 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Dividends from net investment income (.01) Distributions from net realized and unrealized gains reportable for federal income taxes (1.08) (.14) --- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (1.09) (.14) --- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $14.13 $13.70 $10.71 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return (d) 11.68% 29.3% 7.1% Ratios/Supplemental Data Ratio of expenses to average net assets (a)(c) 1.34% 1.37% 1.41%* Ratio of net investment gain (loss) to average net assets (c) (.52)% (.62)% .22%* Portfolio turnover rate 116% 101% 173%* Net assets at end of period (in millions) $ 67 $ 68 $ 34
(a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Twenty ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.32% for the period ended December 31, 2000, 1.35% for the period ended December 31, 1998 and the year ended December 31, 1999. (b) Net investment loss per share was based upon the average shares outstanding during the period. (c) Acorn Twenty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1999. Without the reimbursement, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have been 1.83% and (.21%), respectively, for the period ended 12/31/98 and 1.41% and (.66%) respectively, for the year ended 12/31/99. (d) Total return is not annualized for periods less than one year. * Annualized ___ 41 Liberty Acorn Foreign Forty
Inception November 23 Year Ended Through December 31, - --------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each year 2000 1999 1998 Class Z Class Z Class Z Net Asset Value, beginning of period $ 19.93 $11.00 $10.00 Income From Investment Operations Net investment loss (c) (.11) (.02) (.01) Net realized and unrealized gain (loss) on investments (2.53) 8.98 1.01 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.64) 8.96 1.00 - --------------------------------------------------------------------------------------------------------------------------- Less Distributions (.04) --- --- Dividends from net investment income Distributions from net realized and unrealized gains reportable for federal income taxes (.10) (.03) --- - --------------------------------------------------------------------------------------------------------------------------- Total Distributions (.14) (.03) --- - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $ 17.15 $19.93 $11.00 ========================================================================================================================== Total Return (d) (13.35)% 81.6% 10.0% Ratios/Supplemental Data: Ratio of expenses to average net assets (a)(c) 1.33% 1.48% 1.73%* Ratio of net investment loss to average net assets (c) (.42)% (.17)% (.78)%* Portfolio turnover rate 79% 60% 90%* Net assets at end of period (in millions) $ 130 $ 107 $ 16
(a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Foreign Forty ratio reflects total expenses prior to the reduction of custodian fees for cash balances it maintains with the custodian ("custodian fees paid indirectly"). This ratio net of custodian fees paid indirectly would have been 1.45% for the period ended December 31, 1998 and the year ended December 31, 1999. (b) Net investment loss per share was based upon the average shares outstanding during the period. (c) Acorn Foreign Forty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1999. Without the reimbursement, the ratio of expenses (prior to custodian fees paid indirectly) to average net assets and the ratio of net investment income to average net assets would have been 2.70% and (1.75%), respectively, for the period ended 12/31/98 and 1.57% and (.26%), respectively, for the year ended 12/31/99. (d) Total return is not annualized for periods less than one year. * Annualized ___ 42 Notes _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ ___ 43 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about each Fund's investments in the Funds' semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Funds' performance over their last fiscal year. You may wish to read the Statement of Additional Information for more information on the Funds and the securities in which they invest. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. You can get free copies of reports and the Statement of Additional Information, request other information and discuss your questions about Liberty Acorn by writing or calling Liberty Acorn's distributor at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-9-ACORN-9 www.acornfunds.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 Funds 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: Liberty Acorn Trust: 811-01829 (formerly Acorn Investment Trust) - -------------------------------------------------------------------------------- [LETTERHEAD OF LIBERTY FUNDS] - -------------------------------------------------------------------- LIBERTY ACORN FUND Prospectus, May 1, 2001 - -------------------------------------------------------------------- Class Z Shares Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust 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 Insured; May Lose Value; No Bank Guarantee - --------------------------------------------------------------- T A B L E O F C O N T E N T S
LIBERTY ACORN FUND 2 - --------------------------------------------------------------- Investment Goal............................................ 2 Principal Investment Strategies............................ 2 Principal Investment Risks................................. 2 Performance History........................................ 4 Your Expenses.............................................. 5 YOUR ACCOUNT 6 - --------------------------------------------------------------- How to Buy Shares.......................................... 6 Eligible Investors......................................... 7 Sales Charges.............................................. 9 How to Exchange Shares..................................... 9 How to Sell Shares......................................... 9 Fund Policy on Trading of Fund Shares...................... 11 Other Information About Your Account....................... 11 MANAGING THE FUND 14 - --------------------------------------------------------------- Investment Advisor......................................... 14 Portfolio Managers......................................... 14 OTHER INVESTMENT STRATEGIES AND RISKS 15 - --------------------------------------------------------------- The Information Edge....................................... 15 Stock Strength Comes First................................. 16 Derivative Strategies...................................... 16 Temporary Defensive Strategies............................. 16 FINANCIAL HIGHLIGHTS 17 - ---------------------------------------------------------------
Liberty Acorn Fund INVESTMENT GOAL - -------------------------------------------------------------------------------- Liberty Acorn Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Liberty Acorn Fund invests primarily in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $2 billion at the time of 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. Liberty Acorn Fund typically looks for companies with: . A strong business franchise that offers growth potential. . Products and services that give a company a competitive advantage. . A stock price the Fund's advisor believes is reasonable relative to the assets and earning power of the company. Liberty Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the advisor's stock selections and 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 move down. Downward movements will reduce 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 compared with similar funds. Equity risk 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 equity market tends to move in cycles and 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 ___ 2 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. Smaller companies and mid-capitalization 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. Stocks of smaller companies and mid-capitalization companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they 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 stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than 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 the following: possible delays in the settlement of transactions or the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets or imposition of currency exchange controls. 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. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. 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 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 measures of the Fund's 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 500 Index and the Russell 2000 Index. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Russell 2000 Index is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. Unlike the Fund, indices are not investments, do not incur fees or expenses, are not subject to taxes and are not professionally managed. It is not possible to invest directly in an index. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows changes in the Fund's performance from year to year by illustrating the Fund's calendar year total returns for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual 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 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. 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 an investor's tax situation and may differ from those shown, and are not relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Calendar Year Total Returns [BAR CHART] Year Return ---- ------ 1991 47.35% 1992 24.23% 1993 32.32% 1994 -7.45% 1995 20.80% 1996 22.55% 1997 24.98% 1998 6.02% 1999 33.38% 2000 10.06% The Fund's year-to-date total return through March 31, 2001 was -5.17%. For period shown in bar chart Best quarter: 4th quarter 1999, +21.94% Worst quarter:2nd quarter 1998, -19.51% Average Annual Total Returns -- for periods ended December 31, 2000
Inception Date 1 Year 5 Years 10 Years Class Z 6/10/70 --------------------------------------------------------------------------------------------------- Return Before Taxes 10.06% 18.97% 20.50% --------------------------------------------------------------------------------------------------- Return After Taxes on Distributions 6.24% 15.70% 17.95% --------------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 8.90% 15.00% 17.05% --------------------------------------------------------------------------------------------------- S&P 500 n/a -9.10% 18.33% 17.46% --------------------------------------------------------------------------------------------------- Russell 2000 n/a -3.02% 10.31% 15.53%
___ 4 UNDERSTANDING EXPENSES Annual Fund Operating Expenses are deducted from the Fund. They include management and administration fees, and administrative costs including pricing and custody services. 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: . $10,000 initial investment . 5% total return for each year . fund operating expenses remain the same . assumes reinvestment of all dividends and distributions 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. Shareholder Fees/(1)(2)/ (paid directly from your investment) Maximum sales charge (load) on purchases None - -------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions None - -------------------------------------------------------------- Redemption fee (%) (as a percentage of None amount redeemed) (1) A $10 annual fee is 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/(3)/ (%) .68 - -------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------- Other expenses (%) .15 - -------------------------------------------------------------- Total annual fund operating expenses (%) .83 - -------------------------------------------------------------- (3) In addition to the management fee, the Fund pays the Advisor an administrative fee of .05%, which is included in "Other Expenses." Example Expenses (your actual costs may be higher or lower) 1 Year 3 Years 5 Years 10 Years $85 $265 $460 $1,025 ___ 5 Your Account HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an Eligible Investor (described below), your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that your payment has been received and your application is complete, 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. 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. 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, Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105- 1722. ------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional (existing account) investment stub included in your quarterly statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. ------------------------------------------------------------------------------- By exchange You may acquire shares by exchanging shares you own in one fund for shares of the same class of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - ------------------------------------------------------------------------------- By wire You may purchase shares by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. ------------------------------------------------------------------------------- By electronic You may purchase shares by electronically transferring funds transfer money from your bank account to your Fund account by (existing account) calling 1-800-422-3737. Electronic funds transfers 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 can make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You can 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. ------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by one diversification fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. ------------------------------------------------------------------------------- ___ 6 ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Eligible Investors are subject to different minimum investment requirements. Eligible Investors and their applicable investment minimums are: $1,000 minimum initial investment . any shareholder (or family member of such shareholder) who owned shares of any of the Liberty Acorn funds on September 29, 2000 (when all of the Trust's then outstanding shares were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; . any trustee of Liberty Acorn Trust, any employee of Liberty WAM, or a member of the family of the trustee or employee; and . any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians, and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has since continued to hold shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment . any client of a broker-dealer or registered investment advisor that recommends Fund shares and charges an asset-based fee; . any insurance company, trust company or bank, which is purchasing shares for its own account; . any endowment, investment company or foundation; and . any client of an investment advisory affiliate of the distributor if the client meets certain criteria established by the distributor and its affiliate. No minimum initial investment . any person investing all or part of the proceeds of a distribution, "roll over" or transfer of assets into a Liberty IRA from any deferred compensation plan which was a shareholder of any of the Liberty Acorn funds on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the Liberty Acorn funds immediately prior to the distribution, transfer or roll over; and . any retirement plan with aggregate assets of at least $5 million at the time it purchases Class Z shares and which is purchasing shares directly from the distributor or through a third party broker-dealer. ___ 7 If you have any questions about your eligibility to purchase Class Z shares of the Fund, please call 1-800-345-6611. If you hold Fund shares through a broker-dealer or other financial institution, your eligibility to purchase Class Z shares may differ depending on that institution's policies. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. ___ 8 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 also available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number or years for which you are willing to invest. Based on your personal situation, your investment 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. SALES CHARGES - ------------------------------------------------------------------------------ Your purchases of Class Z shares are at net asset value, which is the value of a Fund share without any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - ------------------------------------------------------------------------------ You may exchange your shares for shares of the same share class of another fund or Class A shares of certain other funds distributed by Liberty Funds Distributor, Inc., at net asset value without a sales charge. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. 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 New York Stock Exchange (NYSE) is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. In "good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and signature guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information. ___ 9 The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities rather than cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information. 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 firm must receive your request prior to the close of the NYSE, usually 4:00 p.m. Eastern time. ------------------------------------------------------------------------------ By exchange You or your financial advisor may sell shares by exchanging from the Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737. ------------------------------------------------------------------------------ By telephone You or your financial advisor may sell shares 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 1-800-345-6611. ------------------------------------------------------------------------------ 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, and signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor institution. 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 Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722. ------------------------------------------------------------------------------ By wire You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. ------------------------------------------------------------------------------ By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. ------------------------------------------------------------------------------ By electronic You may sell shares and request that the proceeds be funds transfer 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. ------------------------------------------------------------------------------ ___ 10 FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. In order to promote the best interests of the Fund, the Fund reserves the right to reject any purchase order or exchange request, particularly from market timers or investors who, in the advisor's opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. The fund into which you would like to exchange also may reject your request. OTHER INFORMATION ABOUT YOUR ACCOUNT - -------------------------------------------------------------------------------- How the Fund's Share Price is Determined The price of a Fund's Class Z shares is 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 (typically Monday through Friday). 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 Fund (or an authorized broker-dealer, financial services company, or other agent, some of whom may charge a fee for their services). 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 an agent, that agent 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 price of each security in its portfolio at the close of each trading day. Because the Fund may hold securities that are traded on foreign exchanges, the value of these securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are not available, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities. You can find the daily prices of some share classes for the Fund in most major daily newspapers under the caption "Liberty." You can find daily prices for all share classes by visiting the Fund's web site at www.libertyfunds.com. -------------------- Account Fees. If your account value falls below $1,000 (other than as a result of depreciation in share value) you may be subject to an annual account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Funds' transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. ___ 11 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: UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains and 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. Types of Distributions Dividend Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. ------------------------------------------------------------------------------ Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains, which are gains on sales of securities held for a 12-month period or less. Distribution Options The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application 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): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, or if you do not cash a distribution check within six months of the check date, the distribution will be reinvested in additional shares of the Fund. ___ 12 Tax Consequences 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 may also be subject to state and local income taxes. In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. 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 on 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 and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. ___ 13 Managing the Fund INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment advisor. Liberty WAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment advisor, Liberty WAM runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2000, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. On November 1, 2000, Liberty announced that it had retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty. For more information about Liberty's acquisition of WAM, see the Statement of Additional Information. Liberty WAM's advisory fee for managing the Fund in 2000 was .68% of the Fund's average daily net assets. Liberty WAM also receives an administrative fee from the Fund at the annual rate of .05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a team to manage the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Ralph Wanger Lead portfolio manager Ralph Wanger is chief strategist of the Liberty Acorn Fund and has been portfolio manager of Liberty Acorn Fund since its inception in 1970. He has been president and a member of Liberty Acorn Trust's Board of Trustees since 1970. Mr. Wanger has been president of Liberty WAM since September 29, 2000 and was a principal of WAM before that date. He is a Chartered Financial Analyst (CFA), and earned his BS and MS degrees in Industrial Management from the Massachusetts Institute of Technology. Charles P. McQuaid Co-portfolio manager Charles McQuaid is a senior vice president and member of Liberty Acorn Trust's Board of Trustees. He has been director of Domestic Research at Liberty WAM and WAM, and was a principal of WAM until September 29, 2000. Mr. McQuaid has been a member of Liberty Acorn Fund's management team since 1978. He is a CFA, and earned his BBA from the University of Massachusetts and his MBA from the University of Chicago. ___ 14 Other Investment Strategies and Risks UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and risks are described under "Liberty Acorn Fund - Principal Investment Strategies" and "Liberty Acorn Fund - Principal Investment Risks." In seeking to meet its investment goal, the Fund may also invest in other securities and use certain other investment techniques. These securities and investment techniques offer opportunities and carry various risks. The advisor may elect not to buy any of these securities or use any of these techniques unless it believes that doing so will help the Fund achieve its investment goal. The Fund may not always achieve its investment goal. Additional information about the Fund's securities and investment techniques, as well as the Fund's fundamental and non-fundamental investment policies, is contained in the Statement of Additional Information. The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and 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 are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund invests in entrepreneurially managed smaller, 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. Liberty WAM 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, Liberty WAM 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, Liberty WAM compares growth potential, financial strength and fundamental value among companies. Growth Potential Financial Strength Fundamental Value - --------------------------- -------------------------- ------------------------- . superior technology . low debt . reasonable stock . innovative marketing . adequate working price relative to . managerial skill capital growth potential . market niche . conservative . valuable assets . good earnings accounting practices prospects . adequate profit . strong demand for margin product The realization of this A strong balance sheet Once Liberty WAM uncovers growth potential would gives management greater an attractive company, it likely produce superior flexibility to pursue identifies a price that performance that is strategic objectives and it believes would also sustainable over time. is essential to make the stock a good maintaining a competitive value. advantage. - --------------------------- -------------------------- ------------------------- ___ 15 STOCK STRENGTH COMES FIRST - -------------------------------------------------------------------------------- Liberty WAM's analysts continually screen companies and make more than 1,000 face-to-face visits around the globe each year. To accomplish this, Liberty WAM analysts talk to top management, vendors, suppliers and competitors, whenever possible. In managing the Fund, Liberty WAM 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 hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 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. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, Liberty WAM 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 a Fund from achieving its investment goal. ___ 16 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. The Fund's fiscal year runs from January 1 to December 31. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information is audited. This information has been derived from the Fund's financial statements which have been audited by Ernst & Young LLP, independent auditors, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750. Liberty Acorn Fund
For a share outstanding throughout each year 2000 1999 1998 1997 1996 Class Z Class Z Class Z Class Z Class Z Net Asset Value, beginning of year $18.53 $16.85 $16.99 $15.04 $13.60 Income from Investment Operations: Net investment income .10 .09 .04 .15 .09 Net realized and unrealized gain on investments, foreign currency and futures 1.55 5.22 .91 3.57 2.93 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.65 5.31 .95 3.72 3.02 Less distributions Dividends from net investment income (.12) (.09) (.03) (.16) (.11) Distributions from net realized and unrealized gains reportable for federal income taxes (2.85) (3.54) (1.06) (1.61) (1.47) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (2.97) (3.63) (1.09) (1.77) (1.58) - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $17.21 $18.53 $16.85 $16.99 $15.04 =============================================================================================================================== Total return 10.06% 33.4% 6.0% 25.0% 22.6% Ratios/supplemental data: Ratio of expenses to average net assets .83% .85% .84% .56% .57% Ratio of net investment income to average net assets .55% .49% .30% .75% .53% Portfolio turnover rate 29% 34% 24% 32% 33% Net assets at end of period (in millions) $3,983 $3,921 $3,549 $3,681 $2,842
For the fiscal year ended December 31, 2000, the Fund earned $695,871,137 of long term capital gains. 64% of the ordinary income distributed by the Fund in the year ended December 31, 2000 qualifies for the corporate dividends received deduction. ___ 17 Notes ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 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________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ___ 19 FOR MORE INFORMATION - -------------------------------------------------------------------------------- You can get more information about the Fund's investments in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over 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. You can get free copies of 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 at: Liberty Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.libertyfunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the Edgar database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Liberty Acorn Trust (formerly Acorn Investment Trust): 811-01829 . Liberty Acorn Fund (formerly Acorn Fund) - -------------------------------------------------------------------------------- [LETTERHEAD OF LIBERTY FUNDS] LIBERTY ACORN TRUST Statement of Additional Information May 1, 2001 This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of Liberty Acorn Trust (Liberty 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, 2001. This SAI should be read together with a Prospectus of the Trust. Investors may obtain a free copy of a Prospectus from Liberty Funds Distributor, Inc. (LFD), One Financial Center, Boston, MA 02111-2621. TABLE OF CONTENTS
Page Definitions 2 Organization and History 2 Investment Policies 2 Portfolio Turnover 6 Additional Information Concerning Investment Practices 7 Taxes - General 16 Management of the Trust 20 Liberty Acorn Charges and Expenses 27 Code of Ethics 32 Custodian 33 Independent Auditors 33 Determination of Net Asset Value 33 How to Buy Shares 33 Special Purchase Programs/Investor Services 34 Programs for Reducing or Eliminating Sales Charges 35 How to Sell Shares 37 How to Exchange Shares 39 Suspension of Redemptions 39 Shareholder Liability 39 Shareholder Meetings 40 Performance Measures and Information 40 Appendix I - Description of Bond Ratings 47
Part 1 LIBERTY ACORN TRUST Statement of Additional Information May 1, 2001 DEFINITIONS "Trust" Liberty Acorn Trust "Funds" Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty "Advisor" Liberty Wanger Asset Management, L.P., the Fund's investment advisor and administrator "LFD" Liberty Funds Distributor, Inc., the Fund's distributor "LFS" Liberty Funds Services, Inc., the Fund's investor services and transfer agent "CDSC" Contingent Deferred Sales Charge "FSF" Financial Service Firm ORGANIZATION AND HISTORY The Trust is a Massachusetts business trust organized in 1992 as successor to The Acorn Fund, Inc., which became the Acorn Fund series of the Trust. The Funds are series of the Trust, and each Fund is an open-end, management investment company. The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by Fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. The Trust changed its name from "Acorn Investment Trust" to its current name on September 29, 2000. On that date, the Funds also changed their names from "Acorn Fund," "Acorn International," "Acorn USA," "Acorn Twenty" and "Acorn Foreign Forty" to their current names. INVESTMENT POLICIES Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty invest with the objective of long- term growth of capital. The Funds are not designed for investors seeking primarily income rather than capital appreciation. The Funds are not, alone or together, a balanced investment program, and there can be no assurance that any of the Funds will achieve its investment objective. The Funds are subject to the following fundamental investment policies, which may not be changed without the affirmative vote of a majority of that Fund's outstanding voting securities. The Investment Company Act of 1940 (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. Liberty Acorn Fund will not: 1. Invest more than 5% of its assets (valued at time of investment) in securities of any one issuer, except in government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Invest more than 5% of its assets (valued at time of investment) in securities of issuers with less than three years' operation (including predecessors); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the fund's assets at the time of borrowing, and (b) in connection with transactions in options and in securities index futures [the fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets]; 6. Pledge, mortgage or hypothecate its assets, except in connection with permitted borrowings; 7. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market to not more than 10% of its total assets at the time of acquisition; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 10. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 11. Sell securities short or maintain a short position, except short sales against-the-box; 12. Participate in a joint or on a joint or several basis in any trading account in securities; 13. Invest in companies for the purpose of management or the exercise of control; 14. Issue any senior security except to the extent permitted under the Investment Company Act of 1940; 15. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value 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). Liberty 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 3 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. Liberty Acorn USA will not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government securities; 4. 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; 4 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. Each of Liberty Acorn Twenty and Liberty Acorn Foreign Forty will not: 1. 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; 2. 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; 3. Invest more than 25% of its total assets in a single issuer (other than U.S. government securities); 4. Invest more than 25% of its total assets in the securities of companies in a single industry (excluding U.S. government securities); 5. 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); 6. 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; 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; 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) foreign currency 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. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. As non-fundamental investment policies which may be changed without a shareholder vote, each Fund may not: a. Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940; b. Invest more than 33% of its total assets (valued at time of investment) in securities of foreign issuers [this restriction applies only to Liberty Acorn Fund]; c. Invest more than 15% of its total assets in the securities of foreign issuers [this restriction applies only to Liberty Acorn Twenty]; 5 d. Invest more than 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, not including securities represented by American Depository Receipts [this restriction applies only to Liberty Acorn USA]; e. Invest more than 15% of its total assets in securities of United States issuers, under normal market conditions [this restriction applies only to Liberty Acorn Foreign Forty]; f. Invest in companies for the purpose of management or the exercise of control; g. 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; h. Invest more than 10% of its total assets (valued at the time of investment) in restricted securities [this restriction applies only to Liberty Acorn Fund, Liberty Acorn International and Liberty Acorn USA]; i. 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; and j. 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. Notwithstanding the foregoing investment restrictions, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty may purchase securities pursuant to the exercise of subscription rights, provided that, in the case of Liberty Acorn International and Liberty Acorn USA, such purchase will not result in either 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 Liberty 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. 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 Act diversification requirement, an issuer is the entity whose revenues support the security. PORTFOLIO TURNOVER High portfolio turnover 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 may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by each Fund. Under normal conditions, the portfolio turnover rates of Liberty Acorn Fund, and Liberty Acorn USA are expected to be below about 50% The portfolio turnover rate, under normal conditions, for Liberty Acorn International is expected to be below 75%. The portfolio turnover rate, under normal conditions, of Liberty Acorn Foreign Forty is likely to be greater than 50% but, under normal market conditions, is expected to be no more than about 100%. The portfolio turnover rate of Liberty Acorn Twenty is likely to be greater than 100% but, under normal market conditions, is expected to be no more than about 175%. 6 ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT PRACTICES Additional information concerning certain of the Funds' investments and investment practices is set forth below. Common Stocks The Funds invest mostly in common stocks, which represent an equity interest (ownership) in a corporation. This ownership interest often gives the Funds the right to vote on measures affecting the company's organization and operations. The Funds also invest in other types of equity securities, including preferred stocks and securities convertible into common stocks. 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 Funds' common stock investments (as a percent of total assets) are allocated as follows: ---------------------------------------------------- U.S. Foreign Companies Companies ---------------------------------------------------- Fund Maximum Maximum ---------------------------------------------------- Liberty Acorn Fund no limit up to 33% Liberty Acorn up to 25% no limit International Liberty Acorn USA no limit up to 10% Liberty Acorn Twenty no limit up to 15% Liberty Acorn Foreign up to 15% no limit Forty ---------------------------------------------------- Liberty Acorn Twenty usually limits its investments in foreign companies to those whose operations are primarily in the U.S. Liberty Acorn Foreign Forty usually limits its investments in U.S. companies to those whose operations are primarily overseas. See also the discussion of foreign securities below. Diversification Diversification is a means of reducing risk by investing in a broad range of stocks or other securities. Because Liberty Acorn Twenty and Liberty Acorn Foreign Forty are non-diversified, those Funds have 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 Liberty Acorn Twenty and Liberty Acorn Foreign Forty can be expected to fluctuate more than that of broadly diversified Funds investing in similar securities. Because they are non-diversified, those Funds are not subject to the limitations under the Act in the percentage of their assets that they may invest in any one issuer. Both Funds, however, intend to comply with the diversification standards for regulated investment companies under Subchapter M of the Internal Revenue Code (summarized above under "Investment Policies"). Although Liberty Acorn Foreign Forty is registered as a non-diversified fund, it has (through the date of this SAI) invested as if it were diversified. Liberty Acorn Foreign Forty expects that it will begin to invest in a non- diversified manner when it believes market conditions are appropriate to do so. However, if Liberty Acorn Foreign Forty's investments remain diversified through November 23, 2001 (three years after it began operations), the Fund will lose the ability to invest in a non-diversified manner and would thereafter be a diversified fund. Liberty Acorn Foreign Forty would not be able to become non- diversified unless it sought and obtained the approval of the holders of a "majority of its outstanding voting securities," as defined in the Act. Foreign Securities The Funds invest in foreign securities, which may entail a greater degree of risk (including risks relating to exchange rate 7 fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. 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 ------------------------------------- Liberty Acorn Fund up to 33% Liberty Acorn no limit International Liberty Acorn USA up to 10% Liberty Acorn Twenty up to 15% Liberty Acorn Foreign no limit Forty ------------------------------------- Liberty Acorn Foreign Forty invests primarily in developed countries but may invest up to 15% of its total assets in securities of companies with broad international interest that are domiciled in the United States or in countries considered "emerging markets," if the operations of those companies are located primarily in developed overseas markets. The Funds use the terms "developed markets" and "emerging markets" as those terms are defined by the International Financial Corporation, a member of the World Bank Group ("IFC"). "Emerging markets" as used by the Fund includes markets designated "frontier markets" by the IFC. Liberty Acorn Foreign Forty does not intend to invest more than 5% of its total assets in those countries included in the "emerging markets" or "frontier markets" categories. Liberty Acorn Twenty usually limits its investments in foreign companies to those whose operations are primarily in the U.S. The 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 U.S. and non-U.S. 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 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. The depositary 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 Funds expects to invest 5% or more of its total assets in unsponsored depositary receipts. The Funds' investment performance 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 may enter into currency exchange transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded, and are usually for less than one 8 year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which the Funds 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. The Funds 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 Advisor 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 such 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, that 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 9 position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign money market instruments. The results of a direct investment in a foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical. Except to the extent a synthetic foreign money market position consists of a money market instrument denominated in a foreign currency, the synthetic foreign money market position shall not be deemed a "foreign security" for purposes of the Funds' investment limits. OTC Derivatives. The Funds may buy and sell over-the-counter ("OTC") derivatives. Unlike exchange-traded derivatives, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC derivatives (derivatives not traded on exchanges) generally are established through negotiation with the other party to the contract. While 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 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 one of the Funds, that Fund would not be able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it has purchased. Futures Contracts and Options on Futures Contracts. The Funds may use interest rate futures contracts and index futures contracts. An interest rate or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument or the cash value of an index /1/ at a specified price and time. A public market exists in - 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. _____________________ /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. 10 To the extent required by regulatory authorities having jurisdiction over the Funds, the Funds will limit their use of futures contracts and futures options to hedging transactions. For example, a Fund might use futures contracts to hedge against fluctuations in the general level of stock prices, anticipated changes in interest rates, or currency fluctuations that might adversely affect either the value of the Fund's securities or the price of the securities that the Fund intends to purchase. The Fund's hedging may include sales of futures contracts as an offset against the effect of expected declines in stock prices or currency exchange rates or increases in interest rates and purchases of futures contracts as an offset against the effect of expected increases in stock prices or currency exchange rates or declines in interest rates. Although other techniques could be used to reduce the Funds' exposure to stock price, interest rate, and currency fluctuations, the Funds may be able to hedge their exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any hedging technique depends on Liberty 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, Liberty 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. 11 Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. Limitations on Options and Futures. A Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held by that Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," /2/ would exceed 5% of the Fund's total assets. - When purchasing a futures contract or writing a put option on a futures contract, a Fund must maintain with its custodian or broker readily-marketable securities having a fair market value (including any margin) at least equal to the market value of such contract. When writing a call option on a futures contract, a Fund similarly will maintain with its custodian or broker readily- marketable securities having a fair market value (including any margin) at least equal to the amount by which such option is in-the-money until the option expires or is closed out by the Fund. A Fund may not maintain open short positions in futures contracts, call options written on futures contracts, or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent a Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid being deemed a "commodity pool," the "underlying commodity value" of each long position in a commodity contract in which a Fund invests will not at any time exceed the sum of: (1) the value of short-term U.S. debt obligations or other U.S. dollar denominated high-quality short-term money market instruments and cash set aside in an identifiable manner, plus any funds deposited as margin on the contract; (2) unrealized appreciation on the contract held by the broker; and (3) cash proceeds from existing investments due in not more than 30 days. "Underlying commodity value" means the size of the contract multiplied by the daily settlement price of the contract. Swap Agreements. 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 _____________ /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. 12 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 Advisor determines it is consistent with that Fund's investment objective and policies, but each Fund will limit its use of swap agreements so that no more than 5% of its total assets will be invested in such agreements. A swap agreement tends to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agrees to exchange payments in dollars at a fixed rate for payments in a foreign currency the amount of which is determined by movements of a foreign securities index, the swap agreement would tend to increase that Fund's exposure to foreign stock market movements and foreign currencies. Depending on how it is used, a swap agreement may increase or decrease the overall volatility of a Fund's investments and its NAV. The performance of a swap agreement is determined by the change in the specific currency, market index, security, or other factors that determine the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, that 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 Advisor 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. A Fund will segregate assets to cover its current obligations under a swap agreement. 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 that 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 that Fund's accumulated obligations under the agreement. Short Sales Against the Box Each Fund may make short sales of securities if, at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. This technique is called selling short "against the box." Although permitted by its investment restrictions, the Funds do not currently intend to sell securities short. In a short sale against the box, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such 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 such 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 such 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, short sales may afford a Fund an opportunity to earn additional current income to the extent the Fund is able to enter into arrangements with broker-dealers through which the short sales are 13 executed to receive income with respect to the proceeds of the short sales during the period the Fund's short positions remain open. The Taxpayer Relief Act of 1997 imposed 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 of "offsetting notional principal contracts" (as defined by the Act) 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. Debt Securities The Funds may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ("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 Liberty Acorn International may not invest more than 20% of its assets in securities rated below investment grade or considered by the Advisor to be of comparable credit quality. Neither Liberty Acorn Fund nor Liberty Acorn International expects to invest more than 5% of its net assets in such securities during the current fiscal year. Each of Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty do not intend to invest more than 20% of their total assets in debt securities nor more than 5% of their total assets in securities rated at or lower than the lowest investment grade. 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 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. 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 priced 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 will be priced at a fair value as determined in good faith by the board of trustees. Neither Liberty Acorn Fund, Liberty Acorn International nor Liberty Acorn USA will invest more than 10% of its total assets (valued 14 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 Advisor, under the supervision of the board of trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to a Fund's restriction of investing no more than 10% (for Liberty Acorn Fund) or 15% (for Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty) 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 this determination the Advisor will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of 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 is determined that a Rule 144A security is no longer liquid, the Funds' holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that a Fund does 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 are unwilling to purchase such securities. Repurchase Agreements Repurchase agreements are transactions in which a 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 the Advisor believes present minimal credit risks in accordance with guidelines approved by the board of trustees. The Advisor will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, the Advisor'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 only in repurchase agreements 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 which is party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation proceedings there may be restrictions on a 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 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 Advisor 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 15 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. 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 Advisor 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. 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 U.S. issuers (or, in the case of Liberty Acorn Fund, Liberty Acorn International and Liberty Acorn Foreign Forty, 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 Liberty 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 level relate to 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. Dividends Received Deductions. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by each Fund qualify. Any such dividends are, however, includable in adjusted current earnings for purposes of computing corporate alternative minimum tax. The dividends received deduction for eligible dividends is subject to a holding period requirement. Dividends paid by Liberty Acorn International and Liberty Acorn Foreign Forty 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 Liberty Acorn Fund, Liberty Acorn USA and Liberty Acorn Twenty is generally eligible for the dividends-received deduction. Capital gain distributions paid from the Funds are never eligible for this deduction. Fund Distributions. Distributions from a Fund (other than exempt-interest dividends, as discussed below) will be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short- term gains. Distributions of net 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 one year or less) 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 at a rate of 20%. The maximum long-term capital gains rate will decrease from 20% to 18% for capital assets that have been held for more than five years and whose holding periods begin after December 31, 2000. Distributions will be taxed as described above whether received in cash or in Fund shares. Dividends and distributions on the 16 Funds' shares are generally subject to federal income tax as described herein to the extent they do not exceed a 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. Return of Capital Distributions. To the extent that a distribution is a return of capital for federal tax purposes, it reduces the cost basis of the shares on the record date and is similar to a partial return of the original investment (on which a sales charge may have been paid). There is no recognition of a gain or loss, however, unless the return of capital exceeds the cost basis in the shares. U.S. Government Securities. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Funds 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. Sales of Shares. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if substantially identical 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. Backup Withholding. Certain distributions and redemptions may be subject to a 31% backup withholding unless a taxpayer identification number and certification that the shareholder is not subject to the withholding is provided to Liberty Acorn. This number and form may be provided by either a Form W-9 or the accompanying application. In certain instances, LFS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. Excise Tax. To the extent that a Fund does not annually distribute substantially all taxable income and realized gains, it is subject to an excise tax. The Advisor intends to avoid this tax except when the cost of processing the distribution is greater than the tax. Tax Accounting Principles. To qualify as a "regulated investment company," each Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets consists of cash, cash items, U.S. Government securities, 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) and (c) distribute at least 90% of its ordinary income (inclusive of net short-term capital gains) earned each year. 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. 17 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 ("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 futures options positions, 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 buying put options (or futures put options) that are intended to hedge against a change in the value of securities held by a Fund may affect the holding period of the hedged securities. If a Fund were to enter into a short index future, short index futures option or short index option position and the Fund's portfolio were deemed to "mimic" the performance of the index underlying such contract, the option or futures contract position and the Fund's stock positions may be deemed to be positions in a mixed straddle, subject to the above-mentioned loss deferral rules. The Internal Revenue Code imposes constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales or "offsetting notional principal contracts" (as defined by the Code) with respect to, or futures or "forward contracts" (as defined by the Code) with respect to, the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. The Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales, offsetting notional principal contracts, and futures or forward contracts to deliver the same or substantially similar property. In order for the Funds to continue to qualify for federal income tax treatment as regulated investment companies, at least 90% of _____________ /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). 18 each Fund's gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts). Any net gain realized from futures (or futures options) contracts will be considered gain from the sale of securities and therefore be qualifying income for purposes of the 90% requirement. The Funds intend 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 Funds. 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, a 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 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. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations, are taxable as ordinary income. If the net effect of these transactions is a gain, the income dividend paid by a Fund will be increased; if the result is a loss, the income dividend paid by a Fund will be decreased. If more than 50% of a 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 portion of certain qualified foreign taxes paid by the Fund. The Advisor 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 will be subject to certain limitations imposed by the Internal Revenue Code, including a holding period requirement, as a result of which a shareholder may not get a full credit for the amount of foreign taxes so paid by a 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 Liberty Acorn International and Liberty Acorn Foreign Forty 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 Liberty Acorn International or Liberty Acorn Foreign Forty, 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. Liberty Acorn Fund, Liberty Acorn USA and Liberty Acorn Twenty do not expect to be able to "pass through" foreign tax credits. Investment by a Fund in certain "passive foreign investment companies" could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company, which tax cannot be eliminated by making distributions to Fund shareholders. However, a Fund may be able to elect to treat a passive foreign investment company as a "qualified electing fund," in which case the Fund will be required to include its share of the company's income and net capital gain annually, regardless of whether it receives any distribution from the company. Alternatively, a Fund may make an election to mark the gains (and, to a limited extent, losses) in such holdings "to market" as though it had sold and repurchased its holdings in those passive foreign investment companies on the last day of the Fund's taxable year. Such gains and losses are treated as ordinary income and loss. The qualified electing fund and mark-to-market elections may have the effect of accelerating the recognition of income (without the receipt of cash) and increasing the amount required to be distributed for a Fund to avoid taxation. Making either of these elections therefore may require a Fund to liquidate other investments (including when it is not advantageous to do so) in order to meet its distribution requirement, which also may accelerate the recognition of gain and affect the Fund's total return. 19 MANAGEMENT OF THE TRUST Each of the Advisor, LFS and LFD is an indirect wholly owned subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which in turn is a direct majority-owned subsidiary of LFC Management Corporation, which in turn is a direct wholly owned subsidiary of Liberty Corporate Holdings, Inc., which in turn is a direct wholly owned subsidiary of LFC Holdings, Inc., which in turn is a direct wholly owned subsidiary of Liberty Mutual Equity Corporation, which in turn is a direct wholly owned subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is an underwriter of workers' compensation insurance and a property and casualty insurer in the U.S. Liberty Financial's address is 600 Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117. On November 1, 2000, Liberty Financial announced that it has retained CS First Boston to help it explore strategic alternatives, including the possible sale of Liberty Financial. Trustees and Officers The board of trustees has overall management responsibility for the Funds. The officers and Trustees of the Trust are:
Position(s) Held Name and with Date of Birth Liberty Acorn Principal Occupation(s) During Past Five Years ------------- ---------------- ---------------------------------------------- Irving B. Harris Trustee and Chairman, The Harris Foundation (charitable foundation). 8/4/1910 chairman Ralph Wanger* Trustee and Portfolio manager, Liberty WAM and WAM; principal, WAM until September 6/21/1934 president 29, 2000; president, WAM Ltd. since July 1992; Trustee and president, Wanger Advisors Trust; director, Wanger Investment Company plc. Leo A. Guthart Trustee Executive vice president, Honeywell International (home and building 9/26/1937 control); Chairman, Cylink Corporation (supplier of encryption equipment); director, AptarGroup, Inc. (producer of dispensing values, pumps and closures); former chairman of the board of trustees, Hofstra University; director, Symbol Technologies, Inc. since December 1999; chairman, Long Island Venture Fund, L.P. Jerome Kahn, Jr. Trustee President, William Harris Investors, Inc. (investment adviser). 4/13/1934 Steven N. Kaplan Trustee Neubauer Family Professor of Entrepreneurship and Finance, Graduate 12/21/1959 School of Business, University of Chicago; director, ImageMax (provider of document management products and services); director, divine interVentures, Inc. (business to business e-commerce). David C. Kleinman Trustee Adjunct professor of strategic management, University of Chicago 10/12/1935 Graduate School of Business; Business consultant; Chairman of the Board, Irex Corporation (insulation contractor); Director, Sonic Foundry, Inc. (software); FirstCom Corp. (competitive local exchange carrier); Organics Management Company (organic waste processor); Wisconsin Paper & Products (paper merchant); Plymouth Tube Company (seamless and welded metal tubing); Member of the advisory board, DSC Logistics Company (warehousing and logistics services). Charles P. McQuaid* Trustee and senior Portfolio manager and director of research, Liberty WAM since July 8/27/1953 vice president 1992; Principal, WAM from July 1992 to September 29, 2000; Trustee and senior vice president, Wanger Advisors Trust; co-manager, Liberty Acorn Fund.
20 Roger S. Meier Trustee CEO and Chairman of the Board, 1/18/1926 AMCO, Inc. (investment and real estate management); president, AMCO, Inc. 1986-1999; director, Fred Meyer, Inc. (retail chain) until 1999; advisory board member, Key Bank of Oregon (banking); chairman of Investment Counsel and member of Committee of Legacy Systems (hospital); Executive director and chairman of investment committee and Trustee, Portland Art Museum. Allan B. Muchin Trustee Partner, Katten, Muchin & Zavis 1/10/1936 (law firm); director, Alberto- Culver Company (toiletries). Robert E. Nason Trustee and vice Consultant and private investor 7/29/1936 chairman since 1998; from 1990-1998, Executive partner and chief executive officer, member of the executive committee of Grant Thornton, LLP (public accounting firm) and member of the policy board of Grant Thornton International; director, Fruit of the Loom, Ltd. (apparel manufacturer) since February 2000; director, Fairfax Insurance Limited (privately owned insurance company) since October 1994. J. Kevin Connaughton Assistant Treasurer of the Liberty Funds and 6/26/1964 Treasurer of the Liberty All-Star Funds since December, 2000 (formerly controller of the Liberty Funds and of the Liberty All-Star Funds from February, 1998 to October, 2000); Treasurer of the Stein Roe Funds since February, 2001 (formerly Controller from May, 2000 to February, 2001); vice president of Colonial Management Associates since February, 1998; Senior Tax Manager, Coopers & Lybrand, LLP from April, 1996 to January, 1998. Diane M. Dustin Assistant Blue sky administrator, Liberty 1/2/1968 Secretary Funds Group. Maureen E. Dustin Assistant Blue sky administrator, Liberty 2/11/1959 Secretary Funds Group. Marcel P. Houtzager Vice President Analyst and portfolio manager, 10/26/1960 Liberty WAM and WAM since 1992; principal, WAM from 1995 to September 29, 2000. Kevin S. Jacobs Assistant Assistant vice president, Liberty 4/13/1961 Secretary Funds Group LLC since June 2000; senior legal product manager, First Union Corp. September 1999 to June 2000; prior thereto, senior legal product manager, Colonial Management Assoc. Kenneth A. Kalina Assistant Chief financial officer, Liberty 8/4/1959 Treasurer WAM and WAM since April 2000; assistant treasurer, Wanger Advisors Trust; fund controller, Liberty WAM and WAM since September 1995; prior thereto, treasurer of the Stein Roe Mutual Funds. Bruce H. Lauer Vice President, Chief operating officer, Liberty 7/22/1957 Assistant WAM and WAM since April 1995; Secretary and principal, WAM from January 2000 Treasurer to September 29, 2000; vice president, treasurer and assistant secretary, Wanger Advisors Trust; director, Wanger Investment Company plc and New Americas Small Cap Fund. Robert A. Mohn Vice President Analyst and portfolio manager, 9/13/1961 Liberty WAM and WAM since August 1992; principal, WAM from 1995 to September 29, 2000; vice president, Wanger Advisors Trust. John H. Park Vice President Analyst and portfolio manager, 5/30/1967 Liberty WAM and WAM since July 1993; principal, WAM from 1998 to September 29, 2000; vice president, Wanger Advisors Trust. 21 Vincent P. Pietropaolo Assistant Vice president and Counsel, 5/7/1965 Secretary Liberty Financial since December 1999; Associate, Morgan Lewis & Bockius, October 1998 to December 1999; product manager, Putnam Investments April 1997 to October 1998; contracting attorney May 1996 to April 1997. Leah J. Zell Vice President Analyst, and portfolio manager, 5/23/1949 Liberty WAM and WAM since July 1992; vice president, Wanger Advisors Trust; managing director and member of trust committee, Chai Trust Company. *Messrs. McQuaid and Wanger are Trustees who are interested persons of Liberty Acorn as defined in the Act, and of Liberty WAM. Mr. Wanger and Ms. Zell are married to each other. Messrs. Harris, Nason, and Wanger are members, and Mr. McQuaid is an alternate member, of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. The address for Mr. Wanger, Mr. McQuaid, Mr. Houtzager, Mr. Kalina, Mr. Lauer, Mr. Mohn, Mr. Park, and Ms. Zell is Liberty Wanger Asset Management, L.P., 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. The address for Messrs. Harris and Kahn is Two North LaSalle Street, Suite 400, Chicago, Illinois 60602. The address for Messrs. Kaplan and Kleinman is 1101 East 58th Street, Chicago, Illinois 60637. The address for Mr. Guthart is 165 Eileen Way, Syosset, New York 11791. The address for Mr. Meier is 1211 S.W. Fifth Avenue, Portland, Oregon 97204. The address for Mr. Muchin is 525 W. Monroe Street, Suite 1600, Chicago, Illinois 60661-3693. The address for Mr. Nason is 567 Rockefeller Road, Lake Forest, Illinois 60045. The address for Mr. Connaughton, Mr. Jacobs, Mr. Pietropaolo, Ms. Diane Dustin, and Ms. Maureen Dustin is Liberty Funds Distributor, Inc., One Financial Center, Boston, MA 02111. During 2000 the Funds paid fees aggregating $548,000 to board members who were not affiliated with the Advisor. 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, 2000 to each of the Trustees of the Trust: 22 Aggregate Comp. From ------------------------------------------- 23
Liberty Liberty Liberty Liberty Liberty Acorn Aggregate Comp. Name of Trustee Acorn Acorn Acorn USA Acorn Foreign Forty from Fund Int. Twenty Fund Complex - --------------------------------------------------------------------------------------------------------------------------- Irving B. Harris $67,410 $49,815 $6,183 $1,055 $2,287 $126,750 Leo A. Guthart $27,004 $20,621 $2,788 $ 437 $ 900 $ 51,750 Jerome Kahn, Jr. $26,823 $20,473 $2,367 $ 437 $ 900 $ 51,000 Steven N. Kaplan $25,376 $19,561 $2,296 $ 417 $ 850 $ 48,500 David C. Kleinman $30,655 $23,723 $2,530 $ 495 $1,096 $ 58,500 Charles P. McQuaid $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Roger S. Meier $26,655 $20,601 $2,407 $ 437 $ 900 $ 51,000 Allan B. Muchin $25,376 $19,561 $2,296 $ 417 $ 850 $ 48,500 Robert E. Nason $29,407 $22,519 $2,606 $ 482 $ 986 $ 56,000 Katherine Schipper* $29,326 $22,580 $2,626 $ 482 $ 986 $ 56,000 Ralph Wanger $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 - ---------------------------------------------------------------------------------------------------------------------------
* Ms. Schipper resigned as a Trustee as of March 31, 2001. The officers and Trustees affiliated with the Advisor serve without any compensation from the Trust. Liberty Acorn has adopted a deferred compensation plan (the Plan) for its non-interested Trustees. Under the Plan, the Trustees who are not "interested persons" of Liberty Acorn or Liberty 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 deferred compensation accrues income from the date of credit in an amount equal to the amount that would have been earned had such deferred compensation (and all income earned thereon) been invested and reinvested in shares of one or more of the Funds. If a participating Trustee retires, such 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 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. The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers. Committees The standing committees of the Fund's board of trustees are:
Committee Members Function No. of Meetings - --------- ------- -------- Held in 2000 ------------ Executive Irving B. Harris Has all of the powers of Ralph Wanger the board of trustees Robert E. Nason during intervals between 0 Charles P. McQuaid meetings of the board, (alternate) with certain exceptions.
24 Audit David C. Kleinman Make recommendations to the board of trustees Robert E. Nason regarding the selection of independent auditors for Jerome Kahn, Jr. the Trust, confer with the independent auditors regarding the scope and results of each audit and carry out the provisions of its charter. 3 Valuation Ralph Wanger Determine valuations of portfolio securities held Irving B. Harris by any series of the Trust in instances in which Charles P. McQuaid the valuation procedures adopted by the board of Leo A. Guthart trustees do not produce a fair value. 5 (alternate) Jerome Kahn, Jr. (alternate) Investment Advisory Roger S. Meier Make recommendations to the board of trustees Agreement Leo A. Guthart regarding the continuation or amendment of the Jerome Kahn, Jr. investment advisory agreements between the Trust David C. Kleinman and the Advisor. 1 Allan B. Muchin Robert E. Nason Nominating Allan B. Muchin Make recommendations to the board of trustees of Irving B. Harris candidates for nomination and election to the board. 0 Roger S. Meier Robert E. Nason Investment David C. Kleinman Examine methods of mutual fund performance Performance Analysis Steven N. Kaplan measurement and make recommendations to the board Ralph Wanger of trustees about the types of performance reports to be provided to the board. 0
Investment Advisor Liberty Wanger Asset Management, L.P. (Liberty WAM) (formerly Wanger Asset Management, L.P. (WAM)), serves as the investment advisor for the Funds and for other institutional accounts. As of December 31, 2000, Liberty WAM had approximately $8.8 billion under management, including the Funds. Liberty WAM and its predecessor have managed mutual funds, including Liberty Acorn since 1992. WAM was renamed Liberty WAM on September 29, 2000 when it became a wholly owned subsidiary of Liberty Financial Companies (Liberty Financial). Under its Investment Advisory Agreement with the Funds, the Advisor provides the Fund with discretionary investment services. Specifically, the Advisor 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 Advisor is also responsible for effecting all security transactions on behalf of the Funds, including the allocation of principal business and portfolio brokerage and the negotiation of commissions (see "Portfolio Transactions" below). The Administration Agreement provides for the payment to the Advisor of the fee described in the Prospectuses. Under the Administration Agreement, the Advisor 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 Advisor by each Fund for the fiscal years ended December 31, 2000, 1999, and 1998 were as 25
follows: Fund 2000 1999 1998 Liberty Acorn Fund $26,750,000 $23,436,860 $24,905,000 Liberty Acorn International $23,515,000 $15,668,082 $14,124,000 Liberty Acorn USA $ 2,844,000 $ 2,805,167 $ 2,336,000 Liberty Acorn Twenty gross advisory fee: $ 585,000 $ 503,457 $ 25,723 exp. reimb: -- (23,136) (12,202) ---------- ----------- ----------- ----------- net advisory fee: $ 585,000 $ 480,321 $ 13,521 Liberty Acorn Foreign Forty gross advisory fee: $ 1,334,000 $ 426,095 $ 11,674 exp. reimb: -- (42,270) (11,875) ---------- ----------- ----------- net advisory fee: $ 1,334,000 $ 383,825 $ (201)
The administrative fees paid to the Advisor by each Fund for the fiscal years ended December 31, 2000, 1999 and 1998 were as follows:
Fund 2000 1999 1998 Liberty Acorn Fund $1,958,000 $1,698,989 $1,812,000 Liberty Acorn International $1,484,000 $ 961,025 $ 858,000 Liberty Acorn USA $ 152,000 $ 150,256 $ 124,000 Liberty Acorn Twenty $ 33,000 $ 27,970 $ 1,000* Liberty Acorn Foreign Forty $ 70,000 $ 22,426 $ 1,000*
* From inception on November 23, 1998. Portfolio Transactions The Advisor places the orders for the purchase and sale of the Funds' portfolio securities and options and futures contracts. The Advisor's overriding objective in effecting portfolio transactions is to seek to obtain the best combination of price and execution. The best net price, giving effect to brokerage commissions, if any, and other transaction costs, normally is an important factor in this decision, but a number of other judgmental factors may also enter into the decision. These include: the Advisor's knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the security being traded; the size of the transaction; the desired timing of the trade; 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 which are considered; the Advisor's knowledge of the financial stability of the broker or dealer selected and such other brokers or dealers; and the Advisor's knowledge of actual or apparent operational problems of any broker or dealer. Recognizing the value of these factors, the Funds may pay a brokerage commission in excess of that which another broker or dealer may have charged for effecting the same transaction. Evaluations of the reasonableness of brokerage commissions, based on the foregoing factors, are made on an ongoing basis by the Advisor's staff while effecting portfolio transactions. The general level of brokerage commissions paid is reviewed by the Advisor, and reports are made annually to the board of trustees of the Funds. With respect to issues of securities involving brokerage commissions, when more than one broker or dealer is believed to be capable of providing the best combination of price and execution with respect to a particular portfolio transaction for a Fund, the Advisor often selects a broker or dealer that has furnished it with research products or services such as research reports, subscriptions to financial publications and research compilations, compilations of securities prices, earnings, dividends, and similar data, and computer data bases, quotation equipment and services, research-oriented computer software and services, and services of economists and other consultants. Selection of brokers or dealers is not made pursuant to an agreement or understanding with any of the brokers or dealers; however, the Advisor uses an internal allocation procedure to identify those brokers or dealers who provide it with research products or services and the amount of research products or services they provide, and endeavors to direct sufficient commissions generated by its clients' accounts in the aggregate, including the Funds, 26 to such brokers or dealers to ensure the continued receipt of research products or services that the Advisor feels are useful. In certain instances, the Advisor receives from brokers and dealers products or services which are used both as investment research and for administrative, marketing, or other non-research purposes. In such instances, the Advisor makes a good faith effort to determine the relative proportions of such products or services which may be considered as investment research. The portion of the costs of such products or services attributable to research usage may be defrayed by the Advisor (without prior agreement or understanding, as noted above) through transaction charges generated by transactions by clients (including the Funds) while the portions of the costs attributable to non-research usage of such products or services is paid by the Advisor in cash. No person acting on behalf of the Funds is authorized, in recognition of the value of research products or services, to pay a commission in excess of that which another broker or dealer might have charged for effecting the same transaction. Research products or services furnished by brokers and dealers may be used in servicing any or all of the clients of the Advisor and not all such research products or services are used in connection with the management of the Funds. With respect to the Funds' purchases and sales of portfolio securities transacted with a broker or dealer on a net basis, the Advisor may also consider the part, if any, played by the broker or dealer in bringing the security involved to the Advisor's attention, including investment research related to the security and provided to a Fund. Liberty Acorn has arranged for its custodian to act as a soliciting dealer to accept any fees available to the custodian as a soliciting dealer in connection with any tender offer for the Funds' portfolio securities held by the Funds. The custodian will credit any such fees received against its custodial fees. In addition, the board of trustees has reviewed the legal developments pertaining to and the practicability of attempting to recapture underwriting discounts or selling concessions when portfolio securities are purchased in underwritten offerings. However, the Board has been advised by counsel that recapture by a mutual fund currently is not permitted under the rules of the National Association of Securities Dealers. Beginning in October 2002, the Advisor may use the services of AlphaTrade, Inc. (ATI), a registered broker-dealer subsidiary of the Advisor, when buying or selling equity securities for the Fund's portfolio pursuant to procedures adopted by the Trustees and Rule 17e-1. Under the Rule, the Advisor must ensure that commissions the Fund pays ATI on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through ATI so that the Trustees may consider whether such trades complied with these procedures and the Rule. ATI employs electronic trading methods by which it seeks to obtain best price and execution for the Fund, and will use a clearing broker to settle trades. Brokerage Commissions (dollars in thousands)
Year ended December 31, 2000 ---------------------------- Liberty Liberty Acorn Liberty Acorn Liberty Acorn Liberty Acorn Fund International Acorn USA Twenty Foreign Forty ---- ------------- --------- ------ ------------- Total commissions $3,136 $8,586 $366 $193 $569 Directed transactions * * * * * Commissions on directed transactions 1,804 994 297 139 72
(*) Rounds to less than one. Administration Agreement Liberty Acorn has a separate administration agreement with the Advisor under which the Advisor receives a fee, calculated daily and paid monthly, at the annual rate of 0.05% of each Fund's average daily net assets. Pursuant to that agreement, the Advisor provides certain administrative services to each Fund, including: (i) maintaining the books and records, including financial and corporate records, of Liberty Acorn; (ii) supervising the preparation and filing of registration statements, notices, reports, tax returns and other documents; (iii) overseeing and assisting in the coordination of the performance of administrative and professional services rendered to the Funds by others; (iv) providing administrative office and data processing facilities; (v) developing and implementing procedures to monitor each Fund's compliance with regulatory requirements and with each Fund's investment policies and restrictions; (vi) providing for the services of employees of the Advisor who may be appointed as officers of Liberty Acorn; and (vii) providing services to shareholders of the Funds. The Administration Agreement has a one year term. The Advisor has the power under the Administration Agreement to delegate some or all of its responsibilities to others, at the 27 Advisor's expense. The Advisor retains responsibility for any services it delegates. The Advisor has delegated some or all of the services provided pursuant to the Administration Agreement to affiliates of Liberty Financial. Principal Underwriter LFD is the principal underwriter of the Fund's shares. LFD has no obligation to buy shares, and purchases shares only upon receipt of orders from authorized financial service firms (FSFs) or investors. LIBERTY ACORN'S CHARGES AND EXPENSES Sales Charges (dollars in thousands)
Class A Shares Year ended December 31, 2000 ---------------------------- Liberty Liberty Liberty Acorn Acorn Liberty Acorn Liberty Acorn Foreign Fund International Acorn USA Twenty Forty ---- ------------- --------- ------ ----- Aggregate initial sales charges on Fund share sales $491 $112 $21 $126 $41 Initial sales charges retained by LFD 0 0 0 0 0 Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by LFD 0 0 0 0 0
Class B Shares Year ended December 31, 2000 ---------------------------- Liberty Liberty Liberty Acorn Acorn Liberty Acorn Liberty Acorn Foreign Fund International Acorn USA Twenty Forty ---- -------------- --------- ------ ------ Aggregate CDSC on Fund redemptions retained by LFD $3 $* $* $* $*
Class C Shares Year ended December 31, 2000 ---------------------------- Aggregate CDSC on Fund redemptions retained by LFD $* $4 $0 $* $0
* Rounds to less than one. 28 The advisory fees the Funds pay to the Advisor are calculated daily and paid monthly, at the annual rates shown below:
Liberty Acorn Fund Average Daily Net Assets Rate of Fee ------------------------ ----------- First $700 million 0.75% Next $1.3 billion 0.70% In excess of $2 billion 0.65% Liberty Acorn International Average Daily Net Assets Rate of Fee ------------------------ ----------- First $100 million 1.20% Next $400 million 0.95% In excess of $500 million 0.75% Liberty Acorn USA Average Daily Net Assets Rate of Fee ------------------------ ----------- First $200 million 0.95% In excess of $200 million 0.90% Liberty Acorn Twenty Rate of Fee ----------- All assets 0.90% Liberty Acorn Foreign Forty Rate of Fee ----------- All assets 0.95%
Liberty WAM has voluntarily agreed to reimburse Liberty Acorn Twenty 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. Liberty WAM has also voluntarily agreed to reimburse Liberty Acorn Foreign Forty 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. These arrangements may be modified or terminated by either Liberty WAM or the Fund on 30 days' notice to the other. Liberty Acorn has a separate administrative services agreement with the Advisor under which the Advisor receives a fee, calculated daily and paid monthly, at the annual rate of 0.05% of each Fund's average daily net assets. Under the Fund's transfer agency and shareholder servicing agreement, the Funds pay LFS a monthly fee at the annual rate of .07% of average daily closing value of the total net assets for the Class A, Class B and Class C shares and certain specified fees on a per account basis, plus certain out-of-pocket expenses. The Funds also pay LFS a monthly fee for Class Z shares based on specified transactions on a per account basis, plus certain out-of-pocket expenses. 29 Ownership of the Fund At March 31, 2001, the only persons known to own of record or beneficially 5% or more of the outstanding shares of any Fund were:
Percentage of Name and Address Fund Outstanding ---------------- ----- Shares Held ----------- Charles Schwab & Co. Inc./(1)/ Liberty Acorn Fund Z 8.26% 101 Montgomery Street Liberty Acorn International Z 21.06% San Francisco, CA 94101-4122 Liberty Acorn USA Z 19.16% Liberty Acorn Twenty Z 10.16% Liberty Acorn Foreign Forty Z 9.40% National Financial Services Corp./(1)/ Liberty Acorn Fund Z 7.56% One World Financial Center Liberty Acorn International Z 10.01% 200 Liberty Street Liberty Acorn USA Z 5.13% New York, NY 10281-1003 Liberty Acorn Twenty Z 6.21% Liberty Acorn Foreign Forty Z 17.16% State of Illinois Employees Liberty Acorn Fund Z 12.51% Deferred Compensation Plan/(2)/ 200 W. Washington Springfield, IL 62706-0001 Firstar Bank TTEE Liberty Acorn USA Z 5.81% City of Milwaukee Deferred Compensation Plan/(2)/ PO Box 1787 Milwaukee, WI 53201-1787 Vanguard Fiduciary Trust Co Liberty Acorn USA Z 5.01% Liberty Acorn USA PO Box 2600 Valley Forge, PA 19482-2600 LPL Financial Services Liberty Acorn Foreign Forty Z 7.48% 9785 Towne Centre Dr San Diego, CA 92121-1968 WHI Equity Managers Fund LLC Liberty Acorn Foreign Forty Z 5.55% 2 N. LaSalle Street, Suite 400 Chicago, IL 60602-3703 Paine Webber/(1)/ Liberty Acorn USA A 11.49% P.O. Box 42828 Houston, TX 77242-2828 Merrill Lynch Pierce Fenner & Liberty Acorn Fund A 6.43% Smith/(1)/ 4800 Deer Lake Dr Jacksonville, FL 32246-6484
30 A Cross Ranch A Partnership Liberty Acorn USA C 16.99% B. F. Allee Larue Allee Switzer Francine Allee McClasin PTNR PO Box 765 Elk City, OK 73648-0765 NFSC FEBO # BCC-264709 Liberty Acorn USA C 11.05% Carol J. Cartwright Irrevocable John B. Dennison 3423 Maplewood Drive Minneapolis, MN 55418-1783 Advest Inc Liberty Acorn USA C 8.38% 90 State House SQ Hartford, Ct 06103-3708 Barbara J. Cramer TTEE Liberty Acorn USA C 6.92% Megan L. Cramer 540 Browning ST Mill Valley, CA 94941-3752 Larue Allee Switzer Cust. Liberty Acorn USA C 6.04% John Allee Switzer PO Box 129 Hammon, OK 73650-0129 Investors Bank & Trust IRA Liberty Acorn USA C 5.77% Michael B. McGee 28582 N. Clements Cir Livonia, MI 48150-3172 Legg Mason Wood Walker Inc Liberty Acorn USA C 5.50% PO Box 1476 Baltimore, MD 21202 Larue Allee Switzer Cust. Liberty Acorn USA C 5.27% Lara Leigh Switzer Uniform Transfer to Minors Act-OK PO Box 129 Hammon, OK 73650-0129 Investors Bank & Trust IRA Liberty Acorn Twenty C 12.90% Richard N. Roscelli, Deceased FBO Richard K. Roscelli Beneficiary 16 Dalebrook Rd Bloomfield, NJ 07003-4152 William Mitchelson Liberty Acorn Twenty C 10.53% NFSC FEBO #HOM-105422 Salem Five Cents Savings Bank 210 Essex St. Salem, MA 01970-3705 (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 March 31, 2001, the Trustees and officers of Liberty Acorn as a group owned beneficially less than 1% of the outstanding Class Z shares of Liberty Acorn Fund, less than 1% of the outstanding Class Z shares of Liberty Acorn International, 1.12% of the outstanding Class Z shares of Liberty Acorn USA, 1.57% of the outstanding Class Z shares of Liberty Acorn Twenty, and 1.21% of the outstanding Class Z shares of Liberty Acorn Foreign Forty. This includes shares held in the Liberty WAM profit sharing plan. Mr. McQuaid, a Trustee of Liberty Acorn, is a Trustee of the plan, and has beneficial interest by virtue of having voting discretion over the shares held in the plan. 12b-1 Plan, Contingent Deferred Sales Charges and Conversion of Shares Each Fund offers four classes of shares - Class A, Class B, Class C and Class Z. Each Fund may in the future offer other 31 classes of shares. The Trustees have approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act for each class except Class Z. Under the Plan, each Fund pays LFD service and distribution fees at the annual rates described in the Prospectus for that Funds' Class A, Class B and Class C shares. LFD may use the entire amount of such fees to defray the cost of commissions and service fees paid to FSFs and for certain other purposes. Since the distribution and service fees are payable regardless of LFD's expenses, LFD may realize a profit from the fees. The Plan authorizes any other payments by the Funds to LFD and its affiliates (including the Advisor) 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 continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such Independent Trustees. Class A shares are offered at net asset value plus varying sales charges which may include a Contingent Deferred Sales Charge (CDSC). 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. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectus. 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. Sales-related expenses (dollars in thousands) of Liberty Funds Distributor, Inc. relating to the Funds were: Liberty Acorn Fund
Year ended December 31, 2000 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $68 $635 $ 1 Cost of sales material relating to the Fund (including printing and mailing expenses) 78 59 32 Allocated travel, entertainment and other promotional (including advertising) 78 59 32
Liberty Acorn USA
Year ended December 31, 2000 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $3 $47 $0 Cost of sales material relating to the Fund (including printing and mailing expenses) 8 10 6 Allocated travel, entertainment and other promotional (including advertising) 4 4 3
Liberty Acorn Twenty
Year ended December 31, 2000 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $22 $168 $0 Cost of sales material relating to the Fund (including printing and mailing expenses) 15 16 4 Allocated Travel, entertainment and other promotional (including advertising) 15 16 4
Liberty Acorn International
Year ended December 31, 2000 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $30 $213 $ 0 Cost of sales material relating to the Fund (including printing and mailing expenses) 44 22 16 Allocated Travel, entertainment and other promotional (including advertising) 43 21 16
Liberty Acorn Foreign Forty
Year ended December 31, 2000 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $ 7 $65 $ 0 Cost of sales material relating to the Fund (including printing and mailing expenses) 15 6 15 Allocated Travel, entertainment and other promotional (including advertising) 14 6 14
CODE OF ETHICS The 1940 Act and rules thereunder require that the Trust and the Advisor 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 Advisor and LFD each have adopted Codes of Ethics to meet those concerns and legal requirements. Although the Codes do not prohibit employees who have knowledge of the investments and investment intentions of the Funds from engaging in personal securities investing, they do regulate such personal securities investing by these employees as a part of the effort by the Trust and the Advisor to detect and prevent conflicts of interest. 32 CUSTODIAN State Street Bank and Trust Company, P.O. Box 8502, Boston Massachusetts 02266- 8502 ("State Street") is the custodian of the assets of the Funds. It 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. State Street does not exercise any supervisory function in such matters as purchase and sale of portfolio securities, payment of dividends, or payment of expenses of the Funds. The Funds have authorized State Street to deposit certain portfolio securities of the Funds in central depository systems as permitted under federal law. The Funds may invest in obligations of State Street and may purchase or sell securities from or to State Street. INDEPENDENT AUDITORS Ernst & Young LLP, located at Sears Tower, 233 South Wacker Drive, Chicago, IL 60606, are the Fund's independent auditors providing audit services, tax return review, other tax consulting services, and assistance and consultation in connection with the review of various SEC filings. DETERMINATION OF NET ASSET VALUE The Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (normally 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. 33 Liberty Acorn Fund, Liberty Acorn International and Liberty Acorn Foreign Forty may invest in securities which are primarily listed on foreign exchanges that are open and allow trading on days on which the Funds do not determine NAV. This may significantly affect the NAV of Liberty Acorn Fund, Liberty Acorn International and Liberty Acorn Foreign Forty's redeemable securities on days when an investor cannot redeem such securities. Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price. 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 for that day. Fund positions for which there are no such valuations and other assets are valued at a fair value as determined by the Advisor in good faith under the direction 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 the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of the Funds' NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value following procedures approved by the Funds' Trustees. 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. 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 orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to a Fund before the Fund processes that day's transactions. If the FSF fails to transmit before a 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 a 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 LFS, 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. Checks presented for the purchase of shares of a Fund which are returned by the purchaser's bank will subject the purchaser to a $15 service fee for each check returned. Each Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, LFD'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 LFD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that LFD may from time to time reallow additional amounts to all or certain FSFs. LFD generally retains some or all of any asset- based sales charge (distribution fee) or contingent deferred sales charges. Such charges generally reimburse LFD for any up-front and/or ongoing commissions paid to FSFs. LFS 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 LFS, provided the new FSF has a sales agreement with LFD. 34 Shares credited to an account are transferable upon written instructions in good order to LFS and may be redeemed as described under General Information Regarding Buying and Selling Shares in the Prospectuses. Certificates will not be issued for Class A shares unless specifically requested and no certificates will be issued for Class B, C or Z shares. Shareholders may send any certificates which have been previously acquired to LFS for deposit to their account. LFD may, at its expense, provide special sales incentives (such as cash payments in addition to the commissions specified in the Funds' SAI) to FSFs that agree to promote the sale of shares of the Funds or other funds that LFD distributes. At its discretion, the Distributor may offer special sales incentives only to selected FSFs or to FSFs who have previously sold or expect to sell significant amounts of the Funds' 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. Pre-authorized monthly bank drafts or electronic funds transfer for a fixed amount of at least $50 are used to purchase Fund shares at the public offering price next determined after LFD receives the proceeds from the draft (normally the 5th or the 20th of each month, or the next business day thereafter). If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from LFD. Tax-Sheltered Retirement Plans. LFD offers prototype tax-qualified plans, including IRAs, and Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $1,000. Investors Bank & Trust Company is the Trustee of LFD prototype plans and charges a $15 annual fee. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from LFD. Participants in non-LFD prototype Retirement Plans (other than IRAs) also are charged a $15 annual fee unless the plan maintains an omnibus account with LFS. Participants in LFD prototype Plans (other than IRAs) who liquidate the total value of their account will also be charged a $15 close-out processing fee payable to LFS. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a LFD IRA Rollover account in any fund, or if the Plan maintains an omnibus account. Consultation with a competent financial and tax advisor regarding these 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 LFS, shareholders, beneficiaries or their FSFs of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges are suspended for 30 days after an address change is effected. Cash Connection. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, on Class A, Class B or Class C shares 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. PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES Exchanges for Affiliates of Investment Advisor. Clients of affiliates of LFD who have previously purchased shares of other investment companies and have been charged a front-end load or other sales charge on such purchases may exchange those shares for Class A shares of any funds distributed by LFD, without incurring an additional front-end load or sales charge for those exchanged shares. Certain funds may charge an annual 12b-1 distribution and service fee. Rights of Accumulation (Class A and Class B only). Reduced sales charges on Class A, and B shares can be effected by combining a current purchase with prior purchases of shares of the Liberty funds. The applicable sales charge is based on the combined total of: 35 1. the current purchase; and 2. the value at the public offering price at the close of business on the previous day of all Liberty fund shares held by the shareholder or donor (except Class A shares of any Liberty money market fund, unless such shares were acquired by exchange from Class A shares of another Liberty fund other than a money market fund). LFD must be promptly notified of each purchase which entitles a shareholder to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's or donor's holdings by LFS. The Fund may terminate or amend this Right of Accumulation. Statement of Intent (Class A only). Any person may qualify for reduced sales charges on purchases of Class A shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all Liberty fund shares held by the shareholder on the date of the Statement in Liberty funds (except Class A shares of any Liberty money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market Liberty 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. During the term of a Statement, LFS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement. If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement. The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. As a part of this adjustment, the FSF shall return to LFD the excess commission previously paid during the thirteen-month period. If the amount of the Statement is not purchased, the shareholder shall remit to LFD 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, LFS will redeem that number of escrowed Class A shares to equal such difference. The additional amount of FSF discount from the applicable offering price shall be remitted to the shareholder's FSF of record. Additional information about and the terms of Statements of Intent are available from your FSF, or from LFS at 1-800-345-6611. Reinstatement Privilege. An investor who has redeemed Fund shares may, upon request, reinstate within one year a portion or all of the proceeds of such sale in shares of the same Class of a Fund at the NAV next determined after LFS receives a written reinstatement request and payment. Any CDSC paid at the time of the redemption will be credited to the shareholder upon reinstatement. The period between the redemption and the reinstatement will not be counted in aging the reinstated shares for purposes of calculating any CDSC or conversion date. Investors who desire to exercise this privilege should contact their FSF or LFS. Shareholders may exercise this privilege an unlimited number of times. Exercise of this privilege does not alter the Federal income tax treatment of any capital gains realized on the prior sale of Fund shares, but to the extent any such shares were sold at a loss, some or all of the loss may be disallowed for tax purposes. Consult your tax advisor. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. A shareholder request must be received within 30 calender days of the distribution. A shareholder may exercise this privilege only once. No charge is currently made for reinvestment. Privileges of Employees or Financial Service Firms. Class A shares of the Funds may be sold at NAV to the following individuals whether currently employed or retired: Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, LFD and other companies affiliated with the Advisor; registered representatives and employees of FSFs (including their affiliates) that are parties to dealer agreements or other sales arrangements with LFD; and such persons' families and their beneficial accounts. Sponsored Arrangements. Class A shares of the Funds may be purchased at reduced or no sales charge pursuant to sponsored arrangements, which include programs under which an organization makes recommendations to, or permits group 36 solicitation of, its employees, members or participants in connection with the purchase of shares of the Funds on an individual basis. The amount of the sales charge reduction will reflect the anticipated reduction in sales expense associated with sponsored arrangements. The reduction in sales expense, and therefore the reduction in sales charge, will vary depending on factors such as the size and stability of the organization's group, the term of the organization's existence and certain characteristics of the members of its group. The Funds reserve the right to revise the terms of or to suspend or discontinue sales pursuant to sponsored plans at any time. Class A shares of the Funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into agreements with LFD pursuant to which a Fund is included as an investment option in programs involving fee-based compensation arrangements and by participants in certain retirement plans. Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes B and C shares). CDSCs may be waived on redemptions in the following situations with the proper documentation: 1. Death. CDSCs may be waived on redemptions within one year following the ----- death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account occurring within one year after the death. If the shares are not redeemed within one year of the death, they will remain subject to the applicable CDSC, when redeemed from the transferee's account. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged. 2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions -------------------------------- occurring pursuant to a monthly, quarterly or semi-annual SWP established with LFS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value, so long as at the time of the first SWP redemption the account had had distributions reinvested for a period at least equal to the period of the SWP (e.g., if it is a quarterly SWP, distributions must have been reinvested at least for the three-month period prior to the first SWP redemption). Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met; this requirement does not apply to Class B or C accounts if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan." 3. Disability. CDSCs may be waived on redemptions occurring within one year ---------- after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise after the purchase of shares and (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged. 4. Death of a Trustee. CDSCs may be waived on redemptions occurring upon ------------------ dissolution of a revocable living or grantor trust following the death of the sole Trustee where (i) the grantor of the trust is the sole Trustee and the sole life beneficiary, (ii) death occurs following the purchase and (iii) the trust document provides for dissolution of the trust upon the Trustee's death. If the account is transferred to a new registration (including that of a successor Trustee), the applicable CDSC will be charged upon any subsequent redemption. 5. Returns of excess contributions. CDSCs may be waived on redemptions ------------------------------- required to return excess contributions made to retirement plans or IRAs, so long as the FSF agrees to return the applicable portion of any commission paid by LFD. 6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to -------------------------- make distributions from qualified retirement plans following normal retirement (as stated in the Plan document). CDSCs also will be waived on SWP redemptions made to make required minimum distributions from qualified retirement plans that have invested in funds distributed by LFD for at least two years. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed. 37 Exchanges for Affiliates of Investment Advisor Clients of affiliates of LFD who have previously purchased shares of other investment companies and have been charged a front-end load or other sales charge on such purchases may exchange those shares for Class A shares of any funds distributed by LFD, without incurring an additional front-end load or sales charge for those exchanged shares. Certain funds may charge an annual 12b-1 distribution and service fee. 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, Liberty Acorn will delay sending proceeds for up to 15 days in order to protect the Funds against financial losses and dilution in net asset value caused by dishonored purchase payment checks. To sell shares directly to the Funds, send a signed letter of instruction or stock power form to LFS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Funds receive the request in proper form. Signatures on some redemption requests must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor institution, as described in the prospectus. Stock power forms are available from FSFs, LFS, and many banks. Additional documentation is required for sales by corporations, agents, fiduciaries, surviving joint owners and IRA holders. Call LFS 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, are responsible for furnishing all necessary documentation to LFS and may charge for this service. Systematic Withdrawal Plan If a shareholder's account balance is at least $5,000, the shareholder may establish a SWP. A specified dollar amount or percentage of the then current net asset value of the shareholder's investment in 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 generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election of the shareholder's investment. Withdrawals from Class B and C shares of the 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 Class B and C share account may do so but will be subject to a CDSC ranging from 1% to 5% of the excess over 12%. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other 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 duplicative 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. Liberty 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 38 death or incapacity of a shareholder. Until this evidence is received, LFS will not be liable for any payment made in accordance with the provisions of a SWP. The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Funds as an expense of all shareholders. Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name", the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. Telephone Redemptions. Telephone redemption privileges are described in the Prospectus. Non Cash Redemptions. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, the Fund may make the payment or a portion of the payment with portfolio securities held by the Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received. Fast Cash. As a convenience to investors, a shareholder is automatically eligible to redeem up to $100,000 from the shareholder's account in a 30-day period and have it mailed to the shareholder's address of record. This service is not available within 30 days of an address change. Shareholders wishing to avail themselves of this service, should complete the appropriate section of the Application. How to Exchange Shares Exchanges at net asset value may be made at any time from any other continuously offered fund distributed by LFD into shares of the same class of a Fund. 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 LFD (with certain exceptions) on the basis of the NAVs per share at the time of exchange and only once per twelve-month period measured from the time the account was opened. The Class C shares of the Funds may be exchanged for the same class of shares of any other continuously offered funds distributed by LFD but only one "roundtrip" exchange of such Class may be made per three-month period, measured from the date of the initial purchase. The Class Z shares of the Funds may be exchanged for the Class A or Class Z shares of any other fund distributed by LFD (with certain exceptions). The prospectus of each fund distributed by LFD describes its investment objective and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain funds distributed by LFD are not available to residents of all states. Consult LFS before requesting an exchange. By calling LFS, 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 and/or shareholder activity, shareholders may experience delays in contacting LFS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another Liberty 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. LFS 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, LFS will require customary additional documentation. Prospectuses of the other funds are available from the LFD Literature Department by calling 1-800-426-3750. A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions. 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. 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. 39 SUSPENSION OF REDEMPTIONS Liberty Acorn may suspend shareholders' right of redemption or postpone payment for more than seven days (i) if the Exchange is closed for other than customary weekends or holidays, (ii) during certain periods when trading on the Exchange is restricted, (iii) 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 (v) during any other period permitted by order of the SEC for 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," Liberty Acorn will not hold annual shareholders' meetings. The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders for the purpose of electing Trustees. Trustees may be removed from office, with or without cause, by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectuses and this SAI, the Trustees shall continue to hold office and may appoint their successors. At any shareholders' meetings that may be held, shareholders of all Funds would vote together, irrespective of Fund, on the election of Trustees or the selection of independent accountants, 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. PERFORMANCE MEASURES AND INFORMATION Total Return Standardized total return and average annual total return. Total return on a per share basis is the amount of 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 at the end of a given period by the value of the share at the beginning of the period and subtracting one. Although they may do so in the future, each Fund typically does not calculate or advertise total return. 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. For example, the Average Annual Total Return on a $1,000 investment in Class Z shares of each Fund for the following periods ended December 31, 2000 were: 40 LIBERTY ACORN FUND Average Annual ------------------ Total Return -------------- 1 year 10.06% 5 years 18.97% 10 years 20.50% Life of Fund (inception 6/10/70) 16.91% LIBERTY ACORN INTERNATIONAL Average Annual --------------------------- Total Return -------------- 1 year -20.02% 5 years 14.87% Life of Fund (inception 9/23/92) 15.69% LIBERTY ACORN USA Average Annual ----------------- Total Return -------------- 1 year -8.99% 3 years 5.80% Life of Fund (inception 9/4/96) 14.93% LIBERTY ACORN TWENTY Average Annual -------------------- Total Return -------------- 1 Year 11.68% Life of Fund (inception 11/23/98) 22.99% LIBERTY ACORN FOREIGN FORTY Average Annual --------------------------- Total Return -------------- 1 Year -13.35% Life of Fund (inception 11/23/98) 29.75% 41 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. Total return for a newer class of shares for periods prior to their inception includes (a) the performance of the newer class of shares since inception (October 16, 2000) and (b) the performance of the oldest existing class of shares 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). For example, the Average Total Return on a $1,000 investment in Class Z shares of each Fund restated to reflect the effects of sales charges of the Class A, Class B and Class C shares, respectively, for the following periods ended December 31, 2000 are:
LIBERTY ACORN FUND Average Annual ------------------ Total Return ------------ Class A Class B Class C ------- ------- ------- 1 year 3.62% 5.18% 8.89% 5 years 17.55% 18.72% 18.92% 10 years 19.78% 20.47% 20.47%
LIBERTY ACORN INTERNATIONAL Average Annual --------------------------- Total Return ------------ Class A Class B Class C ------- ------- ------- 1 year -24.65% -23.52% -20.82% 5 years 13.51% 14.60% 14.83% Life of Fund (inception 9/23/92) 14.86% 15.67% 15.67%
LIBERTY ACORN USA Average Annual ----------------- Total Return ------------ Class A Class B Class C ------- ------- ------- 1 year -14.34% -13.61% -10.06% 3 years 3.69% 4.85% 5.73% Life of Fund (inception 9/4/96) 13.33% 14.58% 14.87%
42
LIBERTY ACORN TWENTY Average Annual -------------------- Total Return ------------ Class A Class B Class C ------- ------- ------- 1 year 5.18% 6.44% 10.44% Life of Fund (inception 11/23/98) 19.54% 21.73% 22.87%
LIBERTY ACORN FOREIGN FORTY Average Annual --------------------------- Total Return ------------ Class A Class B Class C ------- ------- ------- 1 year -18.33% -17.75% -14.26% Life of Fund (inception 9/4/96) 26.15% 28.60% 29.71%
43 Tax-Related Illustrations. The Funds may also quote tax efficiency. Tax Efficiency is derived by dividing after-tax returns by pretax returns. The highest possible score would be 100%, which would apply to a Fund that had no taxable distributions. Because many interrelated factors affect tax efficiency, it is difficult to predict tax efficiency. For information regarding after-tax returns, see "Performance History" in the prospectus.
LIBERTY ACORN FUND'S TAX EFFICIENCY Through December 31, 2000 ----------------------------------- ------------------------- 1 Year 62.00% 5 Years 82.80% 10 Years 87.60% LIBERTY ACORN INTERNATIONAL'S TAX EFFICIENCY Through December 31, 2000 -------------------------------------------- ------------------------- 1 Year NM%* 5 Years 88.00% Life of Fund (inception 9/23/92) 92.90% LIBERTY ACORN USA'S TAX EFFICIENCY Through December 31, 2000 ---------------------------------- ------------------------- 1 Year NM%* 3 Years 75.90% Life of Fund (inception 9/4/96) 91.60% LIBERTY ACORN TWENTY'S TAX EFFICIENCY Through December 31, 2000 ------------------------------------- ------------------------- 1 Year 75.70% Life of Fund (inception 11/23/98) 94.00% LIBERTY ACORN FOREIGN FORTY'S TAX EFFICIENCY Through December 31, 2000 -------------------------------------------- ------------------------- 1 Year NM%* Life of Fund (inception 11/23/98) 99.2%
* Data is not meaningful because returns were negative. Performance results reflect any voluntary fee waivers or reimbursement of Fund expenses by the Advisor or its affiliates. Absent these fee waivers or expense reimbursements, performance results would have been lower. The Funds may also use statistics to indicate volatility or risk. The premise of each of these measures is that greater volatility connotes greater risk undertaken in achieving performance. The Funds may quote the following measures of volatility: Beta. Beta is the volatility of a fund's total return relative to the movements - ---- of a benchmark index. A beta greater than one indicates volatility greater than the index, and a beta of less than one indicates a volatility less than the index. R-squared. R-squared reflects the percentage of a fund's price movements that - --------- are explained by movements in the benchmark index. An R-squared of 1.00 indicates that all movements of a fund's price are completely explained by movements in the index. Generally, a higher R-squared will indicate a more reliable beta figure. Alpha. Alpha is a measure used to discuss a fund's relative performance. Alpha - ----- measures the actual return of a fund compared to the expected return of a fund given its risk (as measured by beta). The expected return of a fund is based on how historical movements of the benchmark index and historical performance of a fund compare to the benchmark index. The expected return 44 is computed by multiplying the advance or decline in a market represented by a fund's beta. A positive alpha quantifies the value that a fund manager has added and a negative alpha quantifies the value that a fund manager has lost. Standard deviation. Standard deviation quantifies the volatility in the returns - ------------------ of a fund by measuring the amount of variation in the group of returns that make up a fund's average return. Standard deviation is generally calculated over a three- or five-year period using monthly returns and modified to present on annualized standard deviation. Sharpe ratio. A fund's Sharpe ratio quantifies its total return in excess of the - ------------ return of a guaranteed investment (90 day U.S. treasury bills), relative to its volatility as measured by its standard deviation. The higher a fund's Sharpe ratio, the better a fund's returns have been relative to the amount of investment risk it has taken. Beta and R-squared are calculated by performing a least squares linear regression using three years of monthly total return figures for each portfolio and benchmark combination. Alpha is calculated by taking the difference between the average monthly portfolio return and the beta-adjusted average monthly benchmark return. The result of this calculation is then geometrically annualized. As of December 31, 2000, some statistics for the Class Z shares of the Funds are as follows: R/2/ Beta Alpha - - ---- ----- Liberty Acorn Fund ------------------ vs. S&P 500 .45 .71 4.62% vs. Russell 2000 .88 .75 8.92% Liberty Acorn International --------------------------- vs. EMI Ex U.S. .64 1.16 11.79% vs. EAFE .52 .96 8.20% Other measures of volatility and relative performance may be used as appropriate. All such measures will fluctuate and do not represent future results. Performance Depictions and Comparisons. In advertising and sales literature, each Fund's performance may be compared with those of market indexes and other mutual funds. In addition to the performance information described above, a Fund might use comparative performance as computed in a ranking or rating determined by Lipper, Inc., an independent service that monitors the performance of mutual funds, Morningstar, Incorporated or another service. Each Fund may also refer to quotations, graphs and electronically transmitted data from sources believed by the Advisor or LFD to be reputable, and publications in the press pertaining to the Fund's performance or to the Advisor or its affiliates, including comparisons with competitors and matters of national and global economic and financial interest. Examples include Forbes, Business Week, Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe, Barron's National Business & Financial Weekly, Financial Planning, Changing Times, Reuters Information Services, Wiesenberger Mutual Funds Investment Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation Services, FTA World Index, Disclosure Incorporated, Bloomberg and Ibbotson. All data are based on past performance and do not predict future results. General. From time to time, each Fund may discuss or quote its current portfolio manager(s) as well as other investment personnel, including such person's views on: the economy; securities markets; portfolio securities and their issuers; investment philosophies, strategies, techniques and criteria used in the selection of securities to be purchased or sold for a Fund; a Fund's portfolio holdings; the investment research and analysis process; the formulation and evaluation of investment recommendations; and the assessment and evaluation of credit, interest rate, market and economic risks and similar or related matters. 45 The Funds may note their mention or recognition in newsletters, newspapers, magazines, or other media. Portfolio managers and other members of the Advisor's staff may make presentations at conferences or trade shows, appear on television or radio programs, or conduct or participate in telephone conference calls, and the Funds may announce those presentations, appearances or calls to some or all shareholders, or to potential investors in the Funds. Biographical and other information about a Fund's portfolio manager, including information about awards received by that portfolio manager or mentions of the manager in the media, may also be described or quoted in Fund advertisements or sales literature. Each Fund may also quote evaluations mentioned in independent radio or television broadcasts, and use charts and graphs to illustrate the past performance of various indices and illustrations using hypothetical rates of return to illustrate the effects of compounding and tax-deferral. Each Fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. From time to time, each Fund may also discuss or quote the views of LFD, the Advisor, and other financial planning, legal, tax, accounting, insurance, estate planning and other professionals, or from surveys, regarding individual and family financial planning. Such views may include information regarding: retirement planning; general investment techniques (e.g., asset allocation and disciplined saving and investing); business succession; issues with respect to insurance (e.g., disability and life insurance and Medicare supplemental insurance); issues regarding financial and health care management for elderly family members; and similar or related matters. 46 Appendix I - Description of Bond Ratings A rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, the Advisor 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 rated Aaa 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. Although 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 bonds. Aa--Bonds rated Aa are judged to be high quality by all standards. Together with the Aaa group 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 bonds or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risk appear somewhat larger than in Aaa bonds. A--Bonds rated A 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 which suggest a susceptibility to impairment sometime in the future. Baa--Bonds rated Baa 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 rated Ba are judged to have speculative elements; their future cannot be considered as well assured. 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 rated B 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 rated Caa are of poor standing. Such bonds may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds rated Ca represent obligations which are speculative in a high degree. Such bonds are often in default or have other marked shortcomings. S&P Ratings AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and interest is extremely strong. AA--Bonds rated AA have a very strong capacity to pay principal and interest and differ from AAA bonds only in small degree. A--Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB--Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this capacity than for bonds in higher rated categories. BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative 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 among such bonds and CC the highest degree of speculation. Although such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 48 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. b. Bylaws, as amended effective September 29, 2000 (exhibit b.2 to post- effective amendment no. 69). (7) c.1 Specimen share certificate- Acorn Fund. (2) c.2 Specimen share certificate- Acorn International (exhibit 4.2 to post- effective amendment no. 54). (2) c.3 Specimen share certificate- Acorn USA. (3) c.4 Specimen shares certificates- Acorn Twenty and Acorn Foreign Forty. (5) c.5 Specimen share certificates for Class A shares of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty. d.1 Investment Advisory Agreement between Liberty Acorn Trust (on behalf of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty) and Liberty Wanger Asset Management, L.P., dated September 29, 2000. d.2 Organizational Expenses Agreement between Acorn Investment Trust and Wanger Asset Management, L.P., dated September 3, 1996 (exhibit 5.3 to post-effective amendment no. 61). (4) d.3 Administration Agreement between Liberty Acorn Trust (on behalf of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty) and Liberty Wanger Asset Management, L.P., dated September 29, 2000. e. Underwriting Agreement between Liberty Acorn Trust and Liberty Funds Distributor, Inc. dated September 29, 2000. f. None g.1 Custodian contract between the Registrant and State Street Bank and Trust Company dated July 1, 1992 (exhibit 8.1 to post-effective amendment no. 60). (1) g.2 Letter agreement applying custodian contract relating to Acorn International (exhibit 8.2 to post-effective amendment no. 60). (1) g.3 Letter agreement applying custodian contract (exhibit 8.1) relating to Acorn USA (exhibit no. 8.3 to post-effective amendment no. 61). (4) g.4 Letter agreement applying custodian contract and transfer agency and service agreement (exhibit 8.1) relating to Acorn Twenty and Acorn Foreign Forty, dated August 17, 1998 (exhibit g.4 to post-effective amendment no. 64). (6) g.5 Amendment to custodian contract between Liberty Acorn Trust and State Street Bank and Trust Company dated November 21, 2000. h. Transfer Agency and Service Agreement between Liberty Acorn Trust and Liberty Funds Services, Inc., dated September 29, 2000. i. Consent of Bell, Boyd & Lloyd LLC. j. Consent of Ernst & Young LLP. k. None. l. None. m.1 Rule 12b-1 Distribution Plan dated September 29, 2000. m.2 Rule 12b-1 Plan Implementing Agreement dated September 29, 2000. n. Plan Pursuant to Rule 18f-3(d) dated September 29, 2000. p.1 Code of Ethics, as amended September 29, 2000. p.2 Code of Ethics for Non-Interested Board Members, as amended September 29, 2000. p.3 Code of Ethics of Liberty Funds Distributor, Inc., the principal underwriter of the Funds, effective September 29, 2000. (8) _________________ (1) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 53 to the registrant's registration statement, Securities Act file number 2-34223 (the "Registration Statement"), filed on April 30, 1996. (2) Previously filed. Incorporated by reference to exhibit 4.1 filed in post- effective amendment No. 54 to the Registration Statement, filed on June 18, 1996. (3) Previously filed. Incorporated by reference to exhibit 4.3 filed in post- effective amendment No. 55 to the Registration Statement, filed on September 3, 1996. 3 (4) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 61 to the Registration Statement filed on April 30, 1998. (5) Previously filed. Incorporated by reference to exhibit 4.4 filed in post- effective amendment No. 62 to the Registration Statement, filed on June 3, 1998. (6) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 64 to the Registration Statement filed on February 26, 1999. (7) Previously filed. Incorporated by reference to exhibit b.2 filed in post- effective amendment No. 69 to the Registration Statement filed on September 29, 2000. (8) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 69 to the Registration Statement filed on September 29, 2000. 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 Advisor" and in the statement of additional information under the caption "Management of the Trust - Investment Advisor" is incorporated by reference. 4 Item 25. Indemnification --------------- Article VIII of the Agreement and Declaration of Trust of the Registrant (exhibit a.1) provides in effect that Registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 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 Advisor" is incorporated by reference. Neither Liberty 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. 5 Item 27. Principal Underwriters (a) Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial Management Associates, Inc., is the Registrant's principal underwriter. LFDI acts in such capacity for each series of Liberty Funds Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty Funds Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds Trust VII, Liberty Funds Trust IX, Liberty Variable Investment Trust, Liberty-Stein Roe Advisor Trust, Stein Roe Income Trust, Stein Roe Municipal Trust, Stein Roe Investment Trust, Liberty Floating Rate Fund, Liberty-Stein Roe Institutional Floating Rate Income Fund, SteinRoe Variable Investment Trust, Stein Roe Trust, Liberty Floating Rate Advantage Fund and Wanger Advisors Trust. (b) The table below lists each director or officer of the principal underwriter named in the answer to Item 20.
(1) (2) (3) Name and Principal Business Address* Position and Offices with Principal Positions and Offices with Registrant Underwriter Abusheery, Greg Vice President None Aldi, Andrew Vice President None Anderson, Judith Vice President None Anguilla, Carol Clerk None Antone, Louis E. Vice President None Ash, James Vice President None Babbitt, Debra Vice President and None Compliance Officer Bartlett, John Managing Director None Bertrand, Thomas Vice President None Blakeslee, James Senior Vice President None Blumenfeld, Alexander Vice President None Bozek, James Senior Vice President None Brown, Beth Senior Vice President None Bruneau, Brian Senior Vice President None Burtman, Stacy Senior Vice President None Campbell, Patrick Vice President None Carinio, Angela Vice President None Carroll, Sean Vice President None Chrzanowski, Daniel Vice President None Clapp, Elizabeth A. Managing Director None Claiborne, Doug Vice President None Climer, Quentin Vice President None Conley, Brook Vice President None Cook, Edward Vice President None Costello, Matthew Vice President None Couto, Scott Vice President None Cox, Michael Vice President None Davey, Cynthia Senior Vice President None Denny, Jeffrey Vice President None Desilets, Mirian Vice President Assistant Secretary Devaney, James Senior Vice President None DiMaio, Stephen Vice President None
6 Donohue, Jordan Vice President None Downey, Christopher Vice President None Dupree, Robert Vice President None Emerson, Kim P. Senior Vice President None Erickson, Cynthia G. Senior Vice President None Evans, C. Frazier Managing Director None Evitts. Stephen Senior Vice President None Feldman, David Managing Director None Feloney, Joseph Senior Vice President None Ferullo, Jeanne Vice President None Fifield, Robert Vice President None Fisher, James Vice President None Ford, David Vice President None Fragasso, Philip Managing Director None Gentile, Russell Vice President None Gerokoulis, Stephen A. Senior Vice President None Gibson, Stephen E. Director and Chairman of the Board President Goldberg, Matthew Senior Vice President None Grace, Anthony Vice President None Gubala, Jeffrey Vice President None Guenard, Brian Vice President None Harrington, Tom Senior Vice President None Hartnett, Kelly Vice President None Hodgkins, Joseph Senior Vice President None Huennekens, James Vice President None Hussey, Robert Managing Director None Iudice, Jr., Philip Treasurer and CFO None Ives, Curt Vice President None Jackson, Lyman Vice President None Johnston, Kenneth Vice President None Jones, Cynthia Vice President None Kelley, Terry M. Vice President None Kelson, David W. Vice President None Kelson, Jr., David Vice President None Lewis, Blair Vice President None Lynch, Andrew Managing Director None Lynn, Jerry Vice President None Marsh, Curtis Senior Vice President None Martin, Peter Senior Vice President None McCombs, Gregory Senior Vice President None McKenzie, Mary Vice President None Menchin, Catherine Senior Vice President None Miller, Anthony Vice President None Moberly, Ann R. Senior Vice President None Morse, Jonathan Vice President None Nickodemus, Paul Vice President None O'Donnell, John Vice President None O'Shea, Kevin Managing Director None Palombo, Joseph R. Director Trustee and Chairman of the Board Perullo, Deborah Vice President None Piken, Keith Senior Vice President None Place, Jeffrey Managing Director None
7 Raftery-Arpino, Linda Senior Vice President None Ratto, Gregory Vice President None Reed, Christopher B. Senior Vice President None Riegel, Joyce Vice President None Ross, Gary Senior Vice President None Santosuosso, Louise Senior Vice President None Schomburg, James Vice President None Schug, Derek Vice President None Schulman, David Senior Vice President None Scully-Power, Adam Vice President None Sellers, Gregory Vice President None Shea, Torence Vice President None Sideropoulos, Lou Senior Vice President None Sinatra, Peter Vice President None Smith, Darren Vice President None Snyder, Kimberly Vice President None Soester, Trisha Vice President None Studer, Eric Vice President None Sullivan, Paul Vice President None Sweeney, Maureen Vice President None Tambone, James CEO and Co-President None Tasiopoulos, Lou Co-President None Torrisi, Susan Vice President None Tufts, Peter Vice President None Turcotte, Frederick J. Vice President None Vail, Norman Vice President None VanEtten, Keith H. Senior Vice President None Wagner, Rebecca Vice President None Warfield, James Vice President None Wess, Valerie Senior Vice President None White, John Vice President None Wider, Mary-Lee Vice President None Yates, Susan Vice President None Young, Deborah 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 Liberty Acorn Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Item 29. Management Services ------------------- None 8 Item 30. Undertakings ------------ Not applicable. 9 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 registration statement under Rule 485(b) under the Securities Act and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on May 1, 2001. LIBERTY ACORN TRUST By /s/ Ralph Wanger ---------------- Ralph Wanger, 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/ Irving B. Harris Trustee and chairman ) - ------------------------------------ ) Irving B. Harris ) ) /s/ Leo A. Guthart Trustee ) - ------------------------------------ ) Leo A. Guthart ) ) /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/ Charles P. McQuaid Trustee ) May 1, 2001 - ------------------------------------ ) Charles P. McQuaid ) ) /s/ Roger S. Meier Trustee ) - ------------------------------------ ) Roger S. Meier ) ) /s/ Allan B. Muchin Trustee ) - ------------------------------------ ) Allan B. Muchin ) ) /s/ Robert E. Nason Trustee ) - ------------------------------------ ) Robert E. Nason ) ) /s/ Ralph Wanger Trustee and President ) - ------------------------------------ (principal executive ) Ralph Wanger officer) ) ) ) /s/ Bruce H. Lauer Treasurer (principal ) - ------------------------------------ financial and accounting ) Bruce H. Lauer officer) )
Index of Exhibits Filed with this Amendment ------------------------------------------- Exhibit Number Exhibit - ------ ------- a.2 Amendment No. 1 to Agreement and Declaration of Trust. c.5 Specimen share certificates for Class A shares of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty. d.1 Investment Advisory Agreement between Liberty Acorn Trust and Liberty Wanger Asset Management, L.P. dated September 29, 2000. d.3 Administration Agreement between Liberty Acorn Trust and Liberty Wanger Asset Management, L.P. dated September 29, 2000. e. Underwriting Agreement between Liberty Acorn Trust and Liberty Funds Distributor, Inc. dated September 29, 2000. g.5 Amendment to custodian contract between Liberty Acorn Trust and State Street Bank and Trust Company dated November 21, 2000. h. Transfer Agency and Service Agreement between Liberty Acorn Trust and Liberty Funds Services, Inc. dated September 29, 2000. i. Consent of Bell, Boyd & Lloyd LLC. j. Consent of Ernst & Young LLP. m.1 Rule 12b-1 Distribution Plan dated September 29, 2000. m.2 Rule 12b-1 Plan Implementing Agreement dated September 29, 2000. n. Plan pursuant to Rule 18f-3(d) dated September 29, 2000. p.1 Code of Ethics, as amended September 29, 2000. p.2 Code of Ethics for Non-Interested Board Members, as amended September 29, 2000. EX-99.A.2 2 dex99a2.txt AMDT. NO. 1 TO AGMT. & DECLARATION OF TRUST Exhibit a.2 ACORN INVESTMENT TRUST ---------------------------------------------- AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST ---------------------------------------------- The undersigned, being a majority of the duly elected and qualified Trustees of Acorn Investment Trust, a voluntary association with transferable shares organized under the laws of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust dated April 21, 1992 ( the "Declaration of Trust"), do hereby amend the Declaration of Trust as follows and hereby consent to such amendment effective as of September 29, 2000: Article I, Section 1 is deleted and the following is inserted in lieu thereof: Section 1. This Trust shall be known as "Liberty Acorn Trust," --------- and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. This instrument may be executed in several counterparts, each of which shall be deemed an original, but all taken together shall be one instrument. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals as of this 24/th/ day of September 2000. /s/ Irving B. Harris Trustee and chairman ) - ------------------------------------ ) Irving B. Harris ) ) /s/ Leo A. Guthart Trustee ) - ------------------------------------ ) Leo A. Guthart ) ) /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 H. Lorie Trustee ) - ------------------------------------ ) James H. Lorie ) ) /s/ Charles P. McQuaid Trustee ) - ------------------------------------ ) Charles P. McQuaid ) ) /s/ Roger S. Meier Trustee ) - ------------------------------------ ) Roger S. Meier ) ) /s/ Allan B. Muchin Trustee ) - ------------------------------------ ) Allan B. Muchin ) ) /s/ Robert E. Nason Trustee ) - ------------------------------------ ) Robert E. Nason ) ) /s/ Katherine Schipper Trustee ) - ------------------------------------ ) Katherine Schipper ) ) /s/ Ralph Wanger Trustee and President ) - ------------------------------------ (principal executive officer) ) Ralph Wanger ) EX-99.C.5 3 dex99c5.txt SPECIMEN SHARE CERTIFICATES LIBERTY ACORN TRUST Exhibit C.5 NUMBER SHARES [ ] [ ] LIBERTY ACORN FUND xxx-xxxxxx SHARE CERTIFICATE xxx-xxxxxx xxxxxxx THIS CERTIFIES THAT is the owner of [NAME] SEE REVERSE FOR CERTAIN DEFINITIONS [ ] CUSIP XXXXXXX CLASS A SHARES OF BENEFICIAL INTEREST OF LIBERTY ACORN FUND a series of Liberty Acorn Trust, subject to the Agreement and Declaration of Trust, of Liberty Acorn Trust, as amended, on file with the Secretary of the Commonwealth of Massachusetts. This certificate is executed by the Trust and is not binding upon any Trustee or officer of the Trust or shareholder of the Fund individually but is binding only upon the assets of the Fund. This certificate is valid only when countersigned by the Transfer Agent. WITNESS the facsimile signatures of the Trust's duly authorized officers. Dated /s/ Bruce H. Lauer [Seal] /s/ Irving B. Harris Vice President, Secretary Chairman and Treasurer COUNTERSIGNED: LIBERTY FUNDS SERVICES, INC. BY: TRANSFER AGENT _____________________________________ AUTHORIZED SIGNATURE ABBREVIATIONS The following abbreviations may be used on the face of this certificate.
Abbreviation Equivalent Abbreviation Equivalent - ------------ ---------- ------------ ---------- JT TEN As joint tenants, with right of TEN IN COM As tenants in common survivorship and not as tenants TEN BY ENT As tenants by the entirety in common UGTA Under Uniform Gifts to Minors Act ADM Administrator UTMA Uniform Transfer to Minors Act Administratrix FDN Foundation AGMT Agreement PL Public Law CUST Custodian for TR Trustee EST Estate of UA Under agreement EX Executor Executrix UW Under Will FBO For the benefit of
Additional abbreviations may also be used though not in the above list. ================================================================================ TRANSFER FORM SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE: ------------------------------ The undersigned assigns to - -------------------------------------------------------------------------------- (Please print or typewrite name and address of assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this certificate and irrevocably appoints The Secretary of the Trust Attorney to ----------------------------------------- transfer said shares on the books of the Trust with full power of substitution. DO NOT SIGN THIS FORM UNLESS THE ASSIGNEE IS NAMED ABOVE Dated This request must be signed exactly as each owner is named on this certificate SIGNATURE GUARANTEED BY by every named owner. (Signature guarantees are subject to acceptance in accordance with Signature the rules of the Transfer Agent.) ----------------------------- ================================================================================ REDEMPTION FORM The undersigned requests the redemption of shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this Certificate. This request must be signed exactly as each owner is named on this certificate by every named owner. Signature ----------------------------- SIGNATURE GUARANTEED BY - ----------------------------------- --------------------------------------- (Signature guarantees are subject Address to acceptance in accordance with the rules of the Transfer Agent.) --------------------------------------- LIBERTY ACORN TRUST NUMBER SHARES [ ] [ ] LIBERTY ACORN INTERNATIONAL xxx-xxxxxx SHARE CERTIFICATE xxx-xxxxxx xxxxxxx THIS CERTIFIES THAT is the owner of [NAME] SEE REVERSE FOR CERTAIN DEFINITIONS [ ] CUSIP XXXXXXX CLASS A SHARES OF BENEFICIAL INTEREST OF LIBERTY ACORN INTERNATIONAL a series of Liberty Acorn Trust, subject to the Agreement and Declaration of Trust, of Liberty Acorn Trust, as amended, on file with the Secretary of the Commonwealth of Massachusetts. This certificate is executed by the Trust and is not binding upon any Trustee or officer of the Trust or shareholder of the Fund individually but is binding only upon the assets of the Fund. This certificate is valid only when countersigned by the Transfer Agent. WITNESS the facsimile signatures of the Trust's duly authorized officers. Dated /s/ Bruce H. Lauer [Seal] /s/ Irving B. Harris Vice President, Secretary Chairman and Treasurer COUNTERSIGNED: LIBERTY FUNDS SERVICES, INC. BY: TRANSFER AGENT _____________________________________ AUTHORIZED SIGNATURE ABBREVIATIONS The following abbreviations may be used on the face of this certificate.
Abbreviation Equivalent Abbreviation Equivalent - ------------ ---------- ------------ ---------- JT TEN As joint tenants, with right of TEN IN COM As tenants in common survivorship and not as tenants TEN BY ENT As tenants by the entirety in common UGTA Under Uniform Gifts to Minors Act ADM Administrator UTMA Uniform Transfer to Minors Act Administratrix FDN Foundation AGMT Agreement PL Public Law CUST Custodian for TR Trustee EST Estate of UA Under agreement EX Executor Executrix UW Under Will FBO For the benefit of
Additional abbreviations may also be used though not in the above list. ================================================================================ TRANSFER FORM SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE: ---------------------------------- The undersigned assigns to - -------------------------------------------------------------------------------- (Please print or typewrite name and address of assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this certificate and irrevocably appoints The Secretary of the Trust Attorney -------------------------------------------- to transfer said shares on the books of the Trust with full power of substitution. DO NOT SIGN THIS FORM UNLESS THE ASSIGNEE IS NAMED ABOVE Dated This request must be signed exactly as each owner is named on this certificate by every named owner. SIGNATURE GUARANTEED BY (Signature guarantees are subject Signature to acceptance in accordance with ---------------------------------- the rules of the Transfer Agent.) ================================================================================ REDEMPTION FORM The undersigned requests the redemption of shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this Certificate. This request must be signed exactly as each owner is named on this certificate by every named owner. SIGNATURE GUARANTEED BY Signature ---------------------------------- - ---------------------------------- (Signature guarantees are subject to acceptance in accordance with ------------------------------------------- the rules of the Transfer Agent.) Address ------------------------------------------- LIBERTY ACORN TRUST NUMBER SHARES [ ] [ ] LIBERTY ACORN USA xxx-xxxxxx SHARE CERTIFICATE xxx-xxxxxx xxxxxxx THIS CERTIFIES THAT is the owner of [NAME] SEE REVERSE FOR CERTAIN DEFINITIONS [ ] CUSIP XXXXXXX CLASS A SHARES OF BENEFICIAL INTEREST OF LIBERTY ACORN USA a series of Liberty Acorn Trust, subject to the Agreement and Declaration of Trust, of Liberty Acorn Trust, as amended, on file with the Secretary of the Commonwealth of Massachusetts. This certificate is executed by the Trust and is not binding upon any Trustee or officer of the Trust or shareholder of the Fund individually but is binding only upon the assets of the Fund. This certificate is valid only when countersigned by the Transfer Agent. WITNESS the facsimile signatures of the Trust's duly authorized officers. Dated /s/ Bruce H. Lauer [Seal] /s/ Irving B. Harris Vice President, Secretary Chairman and Treasurer COUNTERSIGNED: LIBERTY FUNDS SERVICES, INC. BY: TRANSFER AGENT _____________________________________ AUTHORIZED SIGNATURE ABBREVIATIONS The following abbreviations may be used on the face of this certificate.
Abbreviation Equivalent Abbreviation Equivalent - ------------ ---------- ------------ ---------- JT TEN As joint tenants, with right of TEN IN COM As tenants in common survivorship and not as tenants TEN BY ENT As tenants by the entirety in common UGTA Under Uniform Gifts to Minors Act ADM Administrator UTMA Uniform Transfer to Minors Act Administratrix FDN Foundation AGMT Agreement PL Public Law CUST Custodian for TR Trustee EST Estate of UA Under agreement EX Executor Executrix UW Under Will FBO For the benefit of
Additional abbreviations may also be used though not in the above list. ================================================================================ TRANSFER FORM SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE: ------------------------------ The undersigned assigns to - -------------------------------------------------------------------------------- (Please print or typewrite name and address of assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this certificate and irrevocably appoints The Secretary of the Trust Attorney to ----------------------------------------- transfer said shares on the books of the Trust with full power of substitution. DO NOT SIGN THIS FORM UNLESS THE ASSIGNEE IS NAMED ABOVE Dated This request must be signed exactly as each owner is named on this certificate SIGNATURE GUARANTEED BY by every named owner. (Signature guarantees are subject to acceptance in accordance with Signature the rules of the Transfer Agent.) ----------------------------- ================================================================================ REDEMPTION FORM The undersigned requests the redemption of shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this Certificate. This request must be signed exactly as each owner is named on this certificate by every named owner. SIGNATURE GUARANTEED BY Signature ----------------------------- - ---------------------------------- (Signature guarantees are subject --------------------------------------- to acceptance in accordance with Address the rules of the Transfer Agent.) --------------------------------------- LIBERTY ACORN TRUST NUMBER SHARES [ ] [ ] LIBERTY ACORN TWENTY xxx-xxxxxx SHARE CERTIFICATE xxx-xxxxxx xxxxxxx THIS CERTIFIES THAT is the owner of [NAME] SEE REVERSE FOR CERTAIN DEFINITIONS [ ] CUSIP XXXXXXX CLASS A SHARES OF BENEFICIAL INTEREST OF LIBERTY ACORN TWENTY a series of Liberty Acorn Trust, subject to the Agreement and Declaration of Trust, of Liberty Acorn Trust, as amended, on file with the Secretary of the Commonwealth of Massachusetts. This certificate is executed by the Trust and is not binding upon any Trustee or officer of the Trust or shareholder of the Fund individually but is binding only upon the assets of the Fund. This certificate is valid only when countersigned by the Transfer Agent. WITNESS the facsimile signatures of the Trust's duly authorized officers. Dated /s/ Bruce H. Lauer [Seal] /s/ Irving B. Harris Vice President, Secretary Chairman and Treasurer COUNTERSIGNED: LIBERTY FUNDS SERVICES, INC. BY: TRANSFER AGENT - ---------------------------------------- AUTHORIZED SIGNATURE ABBREVIATIONS The following abbreviations may be used on the face of this certificate.
Abbreviation Equivalent Abbreviation Equivalent - ------------ ---------- ------------ ---------- JT TEN As joint tenants, with right of TEN IN COM As tenants in common survivorship and not as tenants TEN BY ENT As tenants by the entirety in common UGTA Under Uniform Gifts to Minors Act ADM Administrator UTMA Uniform Transfer to Minors Act Administratrix FDN Foundation AGMT Agreement PL Public Law CUST Custodian for TR Trustee EST Estate of UA Under agreement EX Executor Executrix UW Under Will FBO For the benefit of
Additional abbreviations may also be used though not in the above list. - ------------------------------------------------------------------------------- TRANSFER FORM SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE: ---------------------------------------- The undersigned assigns to - -------------------------------------------------------------------------------- (Please print or typewrite name and address of assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this certificate and irrevocably appoints The Secretary of the Trust Attorney -------------------------------------------- to transfer said shares on the books of the Trust with full power of substitution. DO NOT SIGN THIS FORM UNLESS THE ASSIGNEE IS NAMED ABOVE Dated This request must be signed exactly as each owner is named on this certificate by every named owner. SIGNATURE GUARANTEED BY (Signature guarantees are subject Signature to acceptance in accordance with ------------------------------ the rules of the Transfer Agent.) - -------------------------------------------------------------------------------- REDEMPTION FORM The undersigned requests the redemption of shares - -------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this Certificate. This request must be signed exactly as each owner is named on this certificate by every named owner. SIGNATURE GUARANTEED BY - ----------------------------------- (Signature guarantees are subject Signature to acceptance in accordance with ------------------------------ the rules of the Transfer Agent.) --------------------------------------- Address --------------------------------------- LIBERTY ACORN TRUST NUMBER SHARES [ ] [ ] LIBERTY ACORN FOREIGN FORTY xxx-xxxxxx SHARE CERTIFICATE xxx-xxxxxx xxxxxxx THIS CERTIFIES THAT is the owner of [NAME] SEE REVERSE FOR CERTAIN DEFINITIONS [ ] CUSIP XXXXXXX CLASS A SHARES OF BENEFICIAL INTEREST OF LIBERTY ACORN FOREIGN FORTY a series of Liberty Acorn Trust, subject to the Agreement and Declaration of Trust, of Liberty Acorn Trust, as amended, on file with the Secretary of the Commonwealth of Massachusetts. This certificate is executed by the Trust and is not binding upon any Trustee or officer of the Trust or shareholder of the Fund individually but is binding only upon the assets of the Fund. This certificate is valid only when countersigned by the Transfer Agent. WITNESS the facsimile signatures of the Trust's duly authorized officers. Dated /s/ Bruce H. Laver [SEAL] /s/ Irving B. Harris Vice President, Secratary Chairman and Treasurer COUNTERSIGNED: LIBERTY FUNDS SERVICES, INC. BY: TRANSFER AGENT _____________________________________ AUTHORIZED SIGNATURE ABBREVIATIONS The following abbreviations may be used on the face of this certificate.
Abbreviation Equivalent Abbreviation Equivalent - ------------ ---------- ------------ ---------- JT TEN As joint tenants, with right of TEN IN COM As tenants in common survivorship and not as tenants TEN BY ENT As tenants by the entirety in common UGTA Under Uniform Gifts to Minors Act ADM Administrator UTMA Uniform Transfer to Minors Act Administratrix FDN Foundation AGMT Agreement PL Public Law CUST Custodian for TR Trustee EST Estate of UA Under agreement EX Executor Executrix UW Under Will FBO For the benefit of
Additional abbreviations may also be used though not in the above list. ================================================================================ TRANSFER FORM SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE: ------------------------------ The undersigned assigns to - -------------------------------------------------------------------------------- (Please print or typewrite name and address of assignee) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this certificate and irrevocably appoints The Secretary of the Trust Attorney to ----------------------------------------- transfer said shares on the books of the Trust with full power of substitution. DO NOT SIGN THIS FORM UNLESS THE ASSIGNEE IS NAMED ABOVE Dated This request must be signed exactly as each owner is named on this certificate SIGNATURE GUARANTEED BY by every named owner. (Signature guarantees are subject to acceptance in accordance with Signature the rules of the Transfer Agent.) ----------------------------- ================================================================================ REDEMPTION FORM The undersigned requests the redemption of shares - ------------------------------------------------------------------------- (Indicate the number of shares to be redeemed. A new certificate will be issued for any balance.) represented by this Certificate. This request must be signed exactly as each owner is named on this certificate by every named owner. SIGNATURE GUARANTEED BY Signature ----------------------------- - ---------------------------------- (Signature guarantees are subject --------------------------------------- to acceptance in accordance with Address the rules of the Transfer Agent.) --------------------------------------- EX-99.D.1 4 dex99d1.txt INVESTMENT ADVISORY AGREEMENT Exhibit d.1 INVESTMENT ADVISORY AGREEMENT Liberty 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 ("Liberty Acorn"), and Liberty Wanger Asset Management, L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser ("Liberty WAM"), agree that: 1. Engagement of Liberty WAM. Liberty Acorn appoints Liberty WAM to furnish investment advisory and other services to Liberty Acorn for its series designated Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty (each, a "Fund," and collectively, the "Funds")), and Liberty WAM accepts that appointment, for the period and on the terms set forth in this agreement. If Liberty Acorn establishes one or more series in addition to the Funds named above with respect to which it desires to retain Liberty WAM as investment adviser hereunder, and if Liberty WAM is willing to provide such services under this agreement, Liberty Acorn and Liberty 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 Liberty WAM by Liberty Acorn with respect to such series and such other modifications of the terms of this agreement with respect to such series as Liberty Acorn and Liberty WAM may agree. Upon execution of such a supplement by Liberty Acorn and Liberty 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 Liberty WAM. (a) Investment Management. Subject to the overall supervision and control of Liberty Acorn's board of trustees (the "Board"), Liberty WAM shall have supervisory responsibility for the general management and investment of the Funds' assets. Liberty 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 Liberty 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. Liberty 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. Liberty 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. Liberty Acorn hereby authorizes any entity or person associated with Liberty 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. Liberty 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). Liberty 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 Liberty WAM (as well as clients of other investment advisers affiliated with Liberty WAM, in the event that Liberty WAM and such affiliated investment advisers share common trading facilities). In such event, Liberty WAM (or Liberty WAM and its affiliated advisers, as the case may be) will allocate the shares so sold or purchased, as well as the expenses incurred in the transaction, in a manner it (or it and they) consider to be equitable and fair and consistent with its (or its or their) fiduciary obligations to clients. (b) Reports and Information. Liberty 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 Liberty Acorn may reasonably request. Liberty Acorn shall furnish or otherwise make available to Liberty WAM such copies of financial statements, proxy statements, reports, and other information relating to the business and affairs of each Fund as Liberty 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 Liberty 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 Liberty 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, Liberty WAM agrees to maintain records relating to its services under this agreement, and further agrees that all records that it maintains for Liberty Acorn are the property of Liberty Acorn and to surrender promptly to Liberty Acorn any of such records upon Liberty Acorn's request; provided that Liberty WAM may at its own expense make and retain copies of any such records. Liberty 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. 2 (e) Status of Liberty WAM. Liberty WAM shall for all purposes herein be deemed to be an independent contractor and not an agent of Liberty Acorn and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Liberty Acorn in any way. Liberty WAM agrees to notify the Trust promptly of any change in the identity of Liberty WAM's general partner. 3. Administrative Services. Liberty WAM shall supervise the business and affairs of Liberty Acorn and each Fund and shall provide such services and facilities as may be required for effective administration of Liberty Acorn and Funds as are not provided by employees or other agents engaged by Liberty Acorn; provided that Liberty 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 Liberty Acorn and Liberty WAM, any affiliate of Liberty WAM, or any third party administrator. 4. Use of Affiliated Companies and Subcontractors. In connection with the services to be provided by Liberty WAM under this agreement, Liberty 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 Liberty WAM, provided that Liberty 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 Liberty WAM or such parties. 5. Expenses to be Paid by Trust. Except as otherwise provided in this agreement or any other contract to which Liberty Acorn is a party, Liberty 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 Liberty WAM or Liberty Acorn's administrator, if any, and all expenses incurred in connection with their services to Liberty 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 Liberty 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 3 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 Liberty Acorn under any other laws applicable to Liberty Acorn or its business activities; (n) all fees, dues and other expenses related to membership of Liberty Acorn in any trade association or other investment company organization; and (o) any extraordinary expenses. In addition to the payment of expenses, Liberty 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 Liberty Acorn. Any expenses paid by Liberty 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 Liberty Acorn that is not solely attributable to a Fund or Funds, nor solely to any other series of Liberty Acorn, shall be apportioned in such manner as Liberty Acorn or Liberty Acorn's administrator determines is fair and appropriate, or as otherwise specified by the Board. 7. Expenses to be Paid by Liberty WAM. Liberty WAM shall furnish to Liberty Acorn, at Liberty WAM's own expense, office space and all necessary office facilities, equipment and personnel required to provide its services pursuant to this agreement. Liberty WAM shall also assume and pay all expenses of placement of securities orders and related bookkeeping. 8. Compensation of Liberty WAM. For the services to be rendered and the expenses to be assumed and to be paid by Liberty WAM under this agreement, Liberty Acorn shall pay to Liberty WAM fees accrued daily and paid monthly at the annual rates shown below: 4 Liberty Acorn Fund Assets Rate of Fee ------ ----------- First $700 million 0.75% $700 million to $2 billion 0.70% In excess of $2 billion 0.65% Liberty Acorn International Assets Rate of Fee ------ ----------- First $100 million 1.20% $100 million to $500 million 0.95% In excess of $500 million 0.75% Liberty Acorn USA Assets Rate of Fee ------ ----------- First $200 million 0.95% In excess of $200 million 0.90% Liberty Acorn Twenty All Assets 0.90% Liberty Acorn Foreign Forty All Assets 0.95% 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 Liberty WAM Not Exclusive. The services of Liberty WAM to Liberty Acorn under this agreement are not exclusive, and Liberty WAM shall be free to render similar services to others so long as its services under this agreement are not impaired by such other activities. 10. Services Other Than as Adviser. Within the limits permitted by law, Liberty WAM or an affiliate of Liberty WAM may receive compensation from Liberty Acorn for other services performed by it for Liberty Acorn which are not within the scope of the duties of Liberty WAM under this agreement, including the provision of brokerage services. 11. Standard of Care. To the extent permitted by applicable law, neither Liberty WAM nor any of its partners, officers, agents, employees or affiliates shall be liable to Liberty Acorn or its shareholders for any loss suffered by Liberty Acorn or its shareholders as a result of 5 any error of judgment, or any loss arising out of any investment, or as a consequence of any other act or omission of Liberty WAM or any of its affiliates in the performance of Liberty WAM's duties under this agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on the part of Liberty WAM or such affiliate, or by reason of reckless disregard by Liberty WAM or such affiliate of the obligations and duties of Liberty WAM under this agreement. 12. Effective Date, Duration and Renewal. This agreement shall become effective on September 29, 2000. Unless terminated as provided in Section 13, this agreement shall continue in effect as to a Fund until September 30, 2002, 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 Liberty Acorn or of Liberty 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 Liberty WAM. This agreement may be terminated by Liberty WAM at any time upon 60 days' written notice to Liberty 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 Liberty Acorn Trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of Liberty Acorn Trust by officers of Acorn Investment Trust as officers and not individually. All obligations of Liberty Acorn hereunder shall be binding only upon the assets of Liberty Acorn (or the appropriate Fund) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Liberty Acorn. Neither the authorization of any action by the Trustees or shareholders of Liberty Acorn nor the execution of this agreement on behalf of Liberty Acorn shall impose any liability upon any trustee, officer or shareholder of Liberty Acorn. 16. Use of Manager's Name. Liberty Acorn may use the name "Liberty" or any other name derived from the name "Liberty" 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 Liberty Financial Companies, Inc. and shall have succeeded to the business of Liberty 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, Liberty Acorn will (by amendment of its agreement and Declaration of Trust if necessary) cease to use any name derived from the name "Liberty" or otherwise 6 connected with Liberty WAM, or with any organization that shall have succeeded to Liberty 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 Liberty Liberty Wanger Asset Management, L.P. WAM: 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: Liberty Funds Group LLC One Financial Center Boston, Massachusetts 02114 Attention: General Counsel Telephone: 617-426-3750 Facsimile: 617-772-3650 If to Liberty Liberty Acorn Trust Acorn: 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: Janet D. Olsen Three First National Plaza, Suite 3300 Chicago, Illinois 60602 Telephone: 312/372-1121 Facsimile: 312/372-2098 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). 7 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. 8 Dated as of September 29, 2000. LIBERTY ACORN TRUST By /s/ Bruce H. Lauer ------------------------------------------ Vice President and Treasurer LIBERTY WANGER ASSET MANAGEMENT, L.P. By /s/ WAM Acquisition GP, Inc. ------------------------------------------ Its General Partner By /s/ Lindsay Cook ------------------------------------------ 9 EX-99.D.3 5 dex99d3.txt ADMINISTRATION AGREEMENT Exhibit d.3 ADMINISTRATION AGREEMENT between LIBERTY ACORN TRUST and LIBERTY WANGER ASSET MANAGEMENT, L.P. Liberty 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 ("Liberty Acorn"), on its own behalf and on behalf of each of the Funds listed on Schedule A, as such Schedule shall be amended from time to time (each, a "Fund," together, the "Funds"), and Liberty Wanger Asset Management, L.P., a Delaware limited partnership ("Liberty WAM"), agree that: 1. Appointment and Acceptance. Liberty Acorn hereby appoints Liberty WAM to act as Administrator of the Funds, subject to the supervision and direction of the Board of Trustees of Liberty Acorn (the "Board"), as hereinafter set forth. Liberty WAM hereby accepts such appointment and agrees to furnish or cause to be furnished the services contemplated by this agreement. 2. Duties of Liberty WAM. (a) Liberty WAM shall perform or arrange for the performance of the following administrative and clerical services: 1) maintain and preserve the books and records, including financial and corporate records, of Liberty Acorn as required by law or otherwise for the proper operation of Liberty Acorn; 2) supervise the preparation and, subject to approval by Liberty Acorn, filing of registration statements and amendments thereto, notices, reports, tax returns and other documents required by U.S. Federal, state and other applicable laws and regulations (other than state "blue sky" laws), including proxy materials and periodic reports to Fund shareholders; 3) oversee the preparation and filing of registration statements, notices, reports and other documents required by state "blue sky" laws, and oversee the monitoring of sales of shares of the Funds for compliance with state securities laws; 4) calculate and publish the net asset value of each Fund's shares, including provision of and payment for any third party pricing services; 5) calculate dividends and distributions and performance data for each Fund, and prepare other financial information regarding Liberty Acorn; 6) oversee and assist in the coordination of, and, as the Board may reasonably request or deem appropriate, make reports and recommendations to the Board on, the performance of administrative and professional services rendered to the Funds by others, including the custodian, registrar, transfer agent and dividend disbursing agent, shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable; 7) furnish corporate secretarial services to Liberty Acorn, including, without limitation, preparation or supervision of the preparation by Liberty Acorn's counsel, of materials necessary in connection with meetings of the Board, including minutes, notices of meetings, agendas and other Board materials; 8) provide Liberty Acorn with the services of an adequate number of persons competent to perform the administrative and clerical functions described herein; 9) provide Liberty Acorn with administrative office and data processing facilities; 10) arrange for payment of each Fund's expenses; 11) provide routine accounting services to the Funds, and consult with Liberty Acorn's officers, independent accountants, legal counsel, custodian, and transfer and dividend disbursing agent in establishing the accounting policies of Liberty Acorn; 12) prepare such financial information and reports as may be required by any banks from which Liberty Acorn borrows funds; 13) develop and implement procedures to monitor each Fund's compliance with regulatory requirements and with each Fund's investment policies and restrictions as set forth in each Fund's currently effective Prospectus and Statement of Additional Information filed under the Securities Act of 1933, as amended; 14) provide for the services of principals and employees of Liberty WAM who may be appointed as officers of Liberty Acorn, including the President, Vice Presidents, Treasurer, Secretary and one or more assistant officers; 15) provide services to shareholders of the Funds, including responding to shareholder inquiries regarding, among other things, share prices, account balances, dividend amounts and payment dates, and changes in account registrations or options, to the extent not provided by a Fund's transfer agent; and 2 16) provide such assistance to the Investment Adviser, the custodian, other Trust service providers and Liberty Acorn's counsel and auditors as generally may be required to carry on properly the business and operations of Liberty Acorn. Liberty Acorn agrees to deliver, or cause to be delivered, to Liberty WAM, on a timely basis, such information as may be necessary or appropriate for Liberty WAM's performance of its duties and responsibilities hereunder, including but not limited to, shareholder reports, records of transactions, valuations of investments and records of expenses borne by each Fund, and Liberty WAM shall be entitled to rely on the accuracy and completeness of such information in performing its duties hereunder. (b) In connection with the services to be provided by Liberty WAM under this agreement, Liberty 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 Liberty WAM, provided that Liberty 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 Liberty WAM or such parties. (c) All activities of Liberty WAM shall be conducted in accordance with Liberty Acorn's agreement and declaration of trust, bylaws and registration statement, under the supervision and direction of the Board, and in conformity with the 1940 Act and other applicable federal and state laws and regulations. 3. Expenses of Liberty WAM. Liberty WAM assumes the expenses of and shall pay for maintaining the staff and personnel necessary to perform its obligations under this agreement, and shall at its own expense provide office space, facilities, equipment and the necessary personnel which it is obligated to provide under section 2(a) hereof, except that Liberty Acorn shall pay the fees and expenses of its legal counsel, auditors and any blue sky service providers. In addition, Liberty WAM shall be responsible for the payment of any persons engaged pursuant to section 2(b) hereof. Liberty Acorn shall assume and pay or cause to be paid all other expenses of the Funds. 4. Compensation of Liberty WAM. For the services provided to Liberty Acorn and each Fund by Liberty WAM pursuant to this agreement, each Fund shall pay Liberty WAM for its services, a fee accrued daily and paid monthly at the annual rate of 0.05% of such Fund's average daily net assets. 5. Limitation of Liability of Liberty WAM. Liberty WAM shall not be liable to Liberty Acorn or any Fund for any error of judgment or mistake of law or for any loss arising out of any act or omission by Liberty WAM, including officers, agents and employees of Liberty WAM and its affiliates, or any persons engaged pursuant to section 2(b) hereof, in the performance of its duties hereunder, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or reckless disregard of its obligations and duties hereunder. 3 6. Activities of Liberty WAM. The services of Liberty WAM under this agreement are not exclusive, and Liberty WAM and its affiliates shall be free to render similar services to others and services to Liberty Acorn in other capacities. 7. Duration and Termination of this Agreement. (a) This agreement shall become effective on September 29, 2000. This agreement may be terminated without penalty by the Board or by Liberty WAM, in each case on 60 days' written notice to the other party. (b) Liberty WAM hereby agrees that the books and records prepared hereunder with respect to Liberty Acorn are the property of Liberty Acorn and further agrees that upon the termination of this agreement or otherwise upon request Liberty WAM will surrender promptly to Liberty Acorn copies of the books and records maintained or required to be maintained hereunder, including in such machine-readable form as agreed upon by the parties, in accordance with industry practice, where applicable. 8. Amendment. This agreement may be amended by the parties hereto only if such amendment is specifically approved by the Board and such amendment is set forth in a written instrument executed by each of the parties hereto. 9. Governing Law. The provisions of this agreement shall be construed and interpreted in accordance with the laws of the State of Illinois as at the time in effect and the applicable provisions of the 1940 Act. To the extent that the applicable law of the State of Illinois, or any provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. 10. Counterparts. This agreement may be executed by the parties hereto in counterparts and if so executed, the separate instruments shall constitute one agreement. 11. Notices. All notices or other communications hereunder to either party shall be in writing and shall be deemed to be received on the earlier date of the date actually received or on the fourth day after the postmark if such notice is mailed first class postage prepaid. Notice shall be addressed: If to Liberty WAM: Liberty 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: Liberty Funds Group LLC One Financial Center Boston, Massachusetts 02114 4 Attention: General Counsel Telephone: 617-426-3750 Facsimile: 617-772-3650 If to Liberty Acorn: Liberty 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: Janet D. Olsen Three First National Plaza, Suite 3300 Chicago, Illinois 60602 Telephone: 312 372-1121 Facsimile: 312 372-2098 or at such other address as either party may designate by written notice to the other. Notice shall also be deemed sufficient if given by telex, telecopier, telegram or similar means of same day delivery (with a confirming copy by mail as provided herein). 12. Separate Funds. This agreement shall be construed to be made by Liberty Acorn as a separate agreement with respect to each Fund, and under no circumstances shall the rights, obligations or remedies with respect to a particular Fund be deemed to constitute a right, obligation or remedy applicable to any other Fund. 13. Entire Agreement. This agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior arrangements, agreements or understandings. 14. Non-Liability of Trustees and Shareholders. All obligation of Liberty Acorn hereunder shall be binding only upon the assets of Liberty Acorn (or the appropriate Fund) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Liberty Acorn. Neither the authorization of any action by the Trustees or shareholders of Liberty Acorn nor the execution of this agreement on behalf of Liberty Acorn shall impose any liability upon any trustee, officer or shareholder of Liberty Acorn. 5 IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above written. LIBERTY ACORN TRUST By /s/ Bruce H. Lauer --------------------------------------- Bruce H. Lauer Vice President and Treasurer LIBERTY WANGER ASSET MANAGEMENT, L.P. By /s/ Lindsay Cook ------------------------------------- 6 SCHEDULE A to the Administration Agreement between Liberty Acorn Trust and Liberty Wanger Asset Management, L.P. Funds to which the Administration Agreement is Applicable --------------------------------------------------------- Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty Dated: September 29, 2000. LIBERTY ACORN TRUST By /s/ Bruce H. Lauer ----------------------------------- Bruce H. Lauer Vice President and Treasurer LIBERTY WANGER ASSET MANAGEMENT, L.P. By /s/ Lindsay Cook ----------------------------------- EX-99.E 6 dex99e.txt UNDERWRITING AGREEMENT Exhibit e. UNDERWRITING AGREEMENT BETWEEN LIBERTY ACORN TRUST AND LIBERTY FUNDS DISTRIBUTOR, INC. THIS UNDERWRITING AGREEMENT ("Agreement"), is hereby made by and between Liberty Acorn Trust, a business trust organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter called the "Fund"), and Liberty Funds Distributor, Inc., a corporation organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter called the "Distributor"). WITNESSETH: WHEREAS, the Fund is engaged in business as an open-end management investment company registered under the Investment Company Act of 1940, as amended ("ICA-40"); and WHEREAS, the Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended ("SEA-34") and the laws of each state (including the District of Columbia and Puerto Rico) in which it engages in business to the extent such law requires, and is a member of the National Association of Securities Dealers ("NASD") and the Securities Investor Protection Corporation (such registrations and membership are referred to collectively as the "Registrations"); and WHEREAS, the Fund desires the Distributor to act as the distributor in the public offering of its shares of beneficial interest (hereinafter called "Shares"); WHEREAS, the Fund shall pay all charges of its transfer, shareholder recordkeeping, dividend disbursing and redemption agents, if any; all expenses of notices, proxy solicitation material and reports to shareholders; all expenses of preparation of annual or more frequent revisions of the Fund's Prospectus(es) and Statement(s) of Additional Information ("SAIs") and of supplying copies thereof to shareholders; all expenses of registering and maintaining the registration of the Fund under ICA-40 and of the Fund's Shares under the Securities Act of 1933, as amended ("SA-33"); all expenses of filing notices relating to the sale of its Shares under securities laws of various states or other jurisdictions and of registration and qualification of the Fund under all laws applicable to the Fund or its business activities; and WHEREAS, Liberty Wanger Asset Management, L.P. ("Liberty WAM"), investment adviser to the Fund, or its affiliates, may pay expenses incurred in the sale and promotion of the Fund except as provided in the Fund's 12b-1 plan; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Appointment. The Fund appoints Distributor to act as principal underwriter (as such term is defined in Sections 2(a)(29) of ICA-40) of its Shares for each series or class of the Fund set forth on Schedule A hereto. 2. Delivery of Fund Documents. The Fund has furnished Distributor with properly certified or authenticated copies of each of the following in effect on the date hereof and shall furnish Distributor from time to time properly certified or authenticated copies of all amendments or supplements thereto: (a) Agreement and Declaration of Trust; (b) Bylaws; (c) Resolutions of the Board of Trustees of the Fund (hereinafter referred to as the "Board") selecting Distributor as distributor and approving this form of agreement and authorizing its execution. The Fund shall furnish Distributor promptly with copies of any registration statements filed by it with the Securities and Exchange Commission ("SEC") under SA-33 or ICA-40, together with any financial statements and exhibits included therein, and all amendments or supplements thereto hereafter filed. The Fund also shall furnish Distributor such other certificates or documents which Distributor may from time to time, in its discretion, reasonably deem necessary or appropriate in the proper performance of its duties. 3. Distribution of Shares. (a) Subject to the provisions of Paragraphs 6, 7, 10, 11, 12, 13 and 14 hereof, and to such minimum purchase and other requirements as may from time to time be described in the Fund's Prospectus(es), Distributor, acting as principal for its own account and not as agent for the Fund, shall have the right to purchase Shares from the Fund. Distributor shall sell Shares only in accordance with the Fund's Prospectus(es), on a "best efforts" basis. Distributor shall purchase Shares from the Fund at a price equal to the net asset value, shall sell Shares at the public offering price as defined in Paragraph 8, and shall retain all sales charges. (b) The Fund shall pay all expenses associated with notices, proxy solicitation material, the preparation of annual or more frequent revisions to the Fund's Prospectus(es) and SAI(s) and of printing and supplying the currently effective Prospectus(es) and SAI(s) to shareholders, other than those necessitated by Distributor's activities or rules and regulations related to Distributor's activities where such amendments or supplements result in expenses which the Fund would not otherwise have incurred. (c) The Distributor (or its affiliates) shall pay the costs of printing and supplying all copies of the Prospectus(es) and SAI(s) that it may reasonably request for use in connection with the distribution of Shares. The Distributor will also pay the 2 expenses of the preparation, excluding legal fees, and printing of all amendments and supplements to the Fund's Prospectus(es) and SAI(s) if the amendment or supplement arises from Distributor's activities or rules and regulations related to Distributor's activities and those expenses would not otherwise have been incurred by the Fund. Distributor will pay all expenses incurred by Distributor in advertising, promoting and selling Fund Shares. (d) Prior to the continuous offering of any Shares of any series of the Fund established during the term of this Agreement, commencing on a date agreed upon by the Fund and the Distributor, the Distributor may solicit subscriptions for such Shares during a subscription period which shall last for such period as may be agreed upon by the parties hereto. The subscriptions will be payable within three business days after the termination of the subscription period, at which time that series of the Fund will commence operations. 4. Selling Agreements. Distributor is authorized to enter into agreements with other broker-dealers providing for the solicitation of unconditional orders for purchases of the Fund's Shares authorized for issuance and registered under SA-33 and fix therein the portion of the sales charge which may be reallowed to the selected dealers, as permitted under that Fund's Prospectus(es). All such agreements shall be either in the form of agreement attached hereto or in such other form as may be approved by the officers of the Fund ("Selling Agreement"). Within the United States, the Distributor shall offer and sell Shares to such selected dealers as are members in good standing of the NASD; "banks" as such term is defined in Section 3(a)(6) of the Exchange Act or a "bank holding company" as such term is defined in the Bank Holding Company Act of 1956, as amended, duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized; and such other entities or purchasers as the parties hereto otherwise mutually agree in writing. 5. Conduct of Business. Other than as set forth in the Fund's currently effective Prospectus(es), Distributor will not distribute any sales material or statements except literature or advertising which conforms to the requirements of federal and state securities laws and regulations which have been filed, where necessary, with the appropriate regulatory authorities. Upon any Fund's request, Distributor will furnish the Fund with copies of all such materials prior to their use. Any sales material or statements the substance of which is not included in the Prospectus(es) or SAI(s) shall be submitted for advance approval by the Fund. 6. Solicitation of Orders to Purchase Shares by Fund. The rights granted to the Distributor shall be non-exclusive in that the Fund reserves the right to solicit purchases from, and sell its Shares to, investors. Further, the Fund reserves the right to issue Shares in connection with the merger or consolidation of any other investment company, trust or personal holding company with the Fund or any series of the Fund, or the Fund's acquisition, by the purchase or otherwise, of all or substantially all of the assets of an investment company, trust or personal holding company, or substantially all of the outstanding shares or interests of any such entity. Any right granted to Distributor to solicit purchases of shares will not apply to Shares that may be offered by any Fund to shareholders by virtue of their being shareholders of the Fund. 3 7. Shares Covered by this Agreement. This Agreement relates to the solicitation of orders to purchase Shares that are duly authorized and registered and available for sale by the Fund, including redeemed or repurchased Shares if and to the extent that they may be legally sold and if, but only if, a Fund authorizes the Distributor to sell them. 8. Public Offering Price. The public offering price for the Fund's Shares will be the net asset value per Share next determined by the Fund after the Distributor or its appointed agent receives the order plus any sales charge as set forth in the Fund's applicable Prospectus(es). The net asset value per Share shall be determined in the manner provided in the Fund's Agreement and Declaration of Trust as now in effect or as may be amended, and as reflected in the Fund's then current Prospectus(es) and SAI(s). 9. Compensation. (a) Sales Charge. Distributor shall be entitled to charge a sales charge on the sale or redemption, as appropriate, of such series and classes of the Fund's Shares as set forth in the Fund's then current Prospectus(es). Distributor may allow any dealers with which it has signed selling agreements such commissions or discounts from and not exceeding the total sales charge as Distributor shall deem advisable, so long as any such commissions or discounts are set forth in the Fund's current Prospectus(es) to the extent required by the applicable federal and state securities laws. Distributor may also make payments to dealers from Distributor's own resources, subject to the following conditions: (a) any such payments shall not create any obligation for or recourse against the Fund or any series or class, and (b) the terms and conditions of any such payments are consistent with the Fund's Prospectus(es) and applicable federal and state securities laws and are disclosed in the Prospectus(es) or SAI(s) to the extent such laws may require. (b) Distribution Plans. Distributor shall also be entitled to compensation for its services as provided in any Distribution Plan adopted as to any series and class of the Fund's Shares pursuant to Rule 12b-1 under the 1940 Act. 10. Suspension of Sales. If and whenever the determination of the Fund's net asset value is suspended and until such suspension is terminated, the Distributor shall not accept orders for Shares except for unconditional orders placed before the suspension. In addition, the Fund reserves the right to suspend sales of Shares if, in the judgment of the Board of the Fund, it is in the best interest of the Fund to do so, such suspension to continue for such period as may be determined by the Board of the Fund; and in that event, (i) at the direction of the Fund, Distributor shall suspend receipt and acceptance of orders to purchase Shares of the Fund until otherwise instructed by the Fund and (ii) the Distributor shall not accept orders to purchase Shares while such suspension remains in effect unless otherwise directed by the Board. 11. Orders and Payment for Shares. (a) Distributor shall direct orders for the purchase of Shares of any series to the Fund's transfer agent. At or prior to the time of delivery of any Shares, the Distributor will pay or cause to be paid to the custodian of the Fund's assets, for 4 the account of such series, an amount in cash equal to the purchase price of such Shares. The Fund's custodian and transfer agent shall be identified in its Prospectus(es). (b) The Fund, or any agent of the Fund designated in writing by the Fund, shall be promptly advised of all purchase orders for Fund Shares received by the Distributor. Any order may be rejected by the Fund; provided, however, that the Fund will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Fund Shares from eligible investors. 12. Repurchase or Redemption of Shares by the Fund. (a) Any of the outstanding Fund Shares may be tendered to the transfer agent for redemption at any time, other than when the Fund suspends redemptions as permitted by its Prospectus(es) or applicable law, and the Fund agrees to repurchase or redeem the Shares so tendered in accordance with its obligations as set forth in its Agreement and Declaration of Trust, as amended from time to time, and in accordance with the applicable provisions set forth in the Prospectus(es) and SAI(s). The price to be paid to redeem or repurchase the Shares shall be equal to the net asset value calculated in accordance with the provisions of the Fund's Prospectus(es) and SAI(s), less any contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the Prospectus(es) or SAI(s) of the Fund relating to the Shares redeemed. All payments by the Fund hereunder shall be made in the manner set forth below. (b) If Shares are tendered to the transfer agent for redemption or repurchase by the Fund within seven business days after Distributor's acceptance of the original purchase order for such Shares, Distributor will immediately refund to the Fund the full sales commission (net of allowances to dealers or brokers) allowed to Distributor on the original sale, and will promptly, upon receipt thereof, pay to the Fund any refunds from dealers or brokers of the balance of sales commissions reallowed by Distributor. The transfer agent shall notify Distributor of such tender for redemption within ten days of the day on which notice of such tender for redemption is received by the transfer agent. (c) The transfer agent shall pay the total amount of the redemption price as defined in the above paragraph 12(a), pursuant to the instructions of the Distributor in Federal Funds on or before the seventh business day subsequent to its having received the notice of redemption in proper form except as otherwise provided in the Prospectus(es) or SAI(s) of the Fund. The proceeds of any redemption of Shares shall be paid by the transfer agent as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be paid to or for the account of the shareholder, in each case in accordance with the applicable provision of the Prospectus(es) and SAI(s). 13. Purchases for Distributor's own Account. Distributor may purchase Shares for its own investment account upon Distributor's written assurance that the purchase is for 5 investment purposes and that the Shares will not be resold except through redemption by the Fund. 14. Investment Programs. In connection with any program under which Liberty WAM or one of its affiliates offers investment advice to shareholders, the Distributor is authorized to offer and sell Shares of the Fund, as principal, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of Shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. 15. Authorized Representations. No Fund is authorized by the Distributor to give on behalf of the Distributor any information or to make any representations other than the information and representations contained in the Fund's registration statement filed with the SEC under SA-33 and/or ICA-40 as it may be amended from time to time. 16. Registration of Additional Shares. The Fund hereby agrees to register an indefinite number of Shares pursuant to Rule 24f-2 under ICA-40, as amended. The Fund will, in cooperation with the Distributor, take such action as may be necessary from time to time to file in any state mutually agreeable to the Distributor and the Fund, any notices relating to the sale of the Shares (so registered or otherwise qualified for sale under SA-33) required by applicable state law or regulation; provided, however, that nothing herein shall be deemed to prevent the Fund from filing notices relating to its Shares without approval of the Distributor in any state it deems appropriate. 17. Conformity With Law. Distributor agrees that in soliciting orders to purchase Shares it shall duly conform in all respects with applicable federal and state laws and the rules and regulations of the NASD. Distributor will use its best efforts to maintain its Registrations in good standing during the term of this Agreement and will promptly notify the Fund and Liberty WAM in the event of the suspension or termination of any of the Registrations. The Distributor will observe and be bound by all the provisions of the Fund's Agreement and Declaration of Trust (and of any fundamental policies adopted by the Fund pursuant to ICA-40, written notice of which shall have been given to the Distributor) which at the time in any way require, limit, restrict or prohibit or otherwise regulate any action on the part of the Distributor. 18. Independent Contractor. Distributor shall be an independent contractor and neither the Distributor, nor any of its officers, directors, employees, or representatives is or shall be an employee of the Fund in the performance of Distributor's duties hereunder. Distributor shall be responsible for its own conduct and the employment, control, and conduct of its agents and employees and for injury to such agents or employees or to others through its agents and employees and agrees to pay all employee taxes thereunder. Distributor may appoint sub-agents or distribute through dealers or otherwise as Distributor may determine from time to time, but this Agreement shall not be construed as authorizing any dealer or other person to accept orders for sale or repurchase on the Fund's behalf or otherwise act as the Fund's agent for any purpose. 19. Indemnification. Distributor agrees to indemnify and hold harmless the Fund and each of the members of its Board and its officers, employees and representatives and each person, if any, who controls the Fund within the meaning of Section 15 of SA-33 against any and 6 all losses, liabilities, damages, claims and expenses (including the reasonable costs of investigating or defending any alleged loss, liability, damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which the Fund or such of the members of its Board and of its officers, employees, representatives, or controlling person or persons may become subject under SA-33, under any other statute, at common law, or otherwise, arising out of or based upon (i) any violation of an applicable law, rule or regulation or wrongful act by Distributor or any of Distributor's directors, officers, employees or representatives, or (ii) any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, SAI, shareholder report or other information covering Shares of the Fund filed or made public by 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 statement or omission was made in reliance upon information furnished to the Fund by Distributor in writing. In no case (i) is Distributor's indemnity in favor of the Fund, or any person indemnified, to be deemed to protect the Fund or such indemnified person against any liability to which the Fund or such person would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement or (ii) is Distributor to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Fund or any person indemnified unless the Fund or such person, as the case may be, shall have notified Distributor in writing of the claim within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim served upon the Fund or upon such person (or after the Fund or such person shall have received notice of such service on any designated agent). However, failure to notify Distributor of any such claim shall not relieve Distributor from any liability which Distributor may have to the Fund or any person against whom such action is brought otherwise than on account of Distributor's indemnity agreement contained in this Paragraph. Distributor shall be entitled to participate, at its own expense, in the defense, or, if Distributor so elects, to assume the defense of any suit brought to enforce any such claim but, if Distributor elects to assume the defense, such defense shall be conducted by legal counsel chosen by Distributor and satisfactory to the persons indemnified who are defendants in the suit. In the event that Distributor elects to assume the defense of any such suit and retain such legal counsel, persons indemnified who are defendants in the suit shall bear the fees and expenses of any additional legal counsel retained by them. If Distributor does not elect to assume the defense of any such suit, Distributor will reimburse persons indemnified who are defendants in such suit for the reasonable fees of any legal counsel retained by them in such litigation. The Fund agrees to indemnify and hold harmless Distributor and each of its directors, officers, employees, and representatives and each person, if any, who controls Distributor within the meaning of Section 15 of SA-33 against any and all losses, liabilities, damages, claims or expenses (including the damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which Distributor or such of its directors, officers, employees, representatives or controlling person or persons may become subject under SA-33, under any other statute, at common law, or otherwise arising out of or based upon (i) any violation of applicable law, rule or regulation or wrongful act by the Fund or any of the members of the Fund's Board, or the Fund's officers, employees or representatives other than Distributor, or (ii) 7 any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, SAI, shareholder report or other information covering Shares filed or made public by 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 unless such statement or omission was made in reliance upon information furnished by Distributor to the Fund. In no case (i) is the Fund's indemnity in favor of the Distributor or any person indemnified to be deemed to protect the Distributor or such indemnified person against any liability to which Distributor or such indemnified person would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement, or (ii) is the Fund to be liable under its indemnity agreement contained in this Paragraph with respect to any claim made against Distributor or any person indemnified unless Distributor, or such person, as the case may be, shall have notified the Fund in writing of the claim within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim served upon Distributor or upon such person (or after Distributor or such person shall have received notice of such service on any designated agent). However, failure to notify the Fund of any such claim shall not relieve the Fund from any liability which the Fund may have to Distributor or any person against whom such action is brought otherwise than on account of the Fund's indemnity agreement contained in this Paragraph. With respect to any claim by the Distributor for recovery of any liability of the Fund arising hereunder allocated to a particular series of the Fund if there be more than one (whether in accordance with the express terms hereof or otherwise), the Distributor shall have recourse solely against the assets of that series to satisfy such claim and shall have no recourse against the assets of any other series for such purpose. The Fund shall be entitled to participate, at its own expense, in the defense or, if the Fund so elects, to assume the defense of any suit brought to enforce such claim but, if the Fund elects to assume the defense, such defense shall be conducted by legal counsel chosen by the Fund and satisfactory to the persons indemnified who are defendants in the suit. In the event that the Fund elects to assume the defense of any such suit and retain such legal counsel, the persons indemnified who are defendants in the suit shall bear the fees and expenses of any additional legal counsel retained by them. If the Fund does not elect to assume the defense of any such suit, the Fund will reimburse the persons indemnified who are defendants in such suit for the reasonable fees and expenses of any legal counsel retained by them in such litigation. 20. Duration and Termination of this Agreement. With respect to the Fund and the Distributor, this Agreement shall become effective on September 29, 2000. After this Agreement shall become effective, unless terminated as provided herein, it shall remain in effect through September 30, 2002 and from year to year thereafter, but only so long as such continuance is specifically approved at least annually (a) by a vote of majority of the members of the Board of the Fund who are not interested persons of the Distributor or of the Fund, voting in person at a meeting called for the purpose of voting on such approval, and (b) by the vote of either the Board of the Fund or a majority of the outstanding Shares of the Fund. This Agreement may be terminated by and between the Fund and Distributor at any time, without the payment of any penalty (a) on 60 days' written notice, by the Board of the Fund or by a vote of a 8 majority of the outstanding Shares of the Fund, or by Distributor, or (b) immediately, on written notice by the Board of the Fund, in the event of termination or suspension of any of the Registrations. This Agreement will automatically terminate in the event of its assignment. In interpreting the provisions of this Paragraph 20 the definitions contained in Section 2(a) of ICA-40 (particularly the definitions of "interested person", "assignment", and "majority of the outstanding Shares") shall be applied. 21. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by each party against which enforcement of the change, waiver, discharge, or termination is sought. If the Fund should at any time deem it necessary or advisable in the best interests of the Fund that any amendment of this Agreement be made in order to comply with the recommendations or requirements of the SEC or any other governmental authority or to obtain any advantage under state or Federal tax laws and notifies Distributor of the form of such amendment, and the reasons therefor, and if Distributor should decline to assent to such amendment, the Fund may terminate this Agreement forthwith. If Distributor should at any time request that a change be made in the Fund's Agreement and Declaration of Trust or by-laws or in its methods of doing business, in order to comply with any requirements of Federal law or regulations of the SEC, or of a national securities association of which Distributor is or may be a member, relating to the sale of Shares, and the Fund should not make such necessary changes within a reasonable time, Distributor may terminate this Agreement forthwith. 22. Liability. It is understood and expressly stipulated that neither the shareholders of the Fund nor the members of the Board of the Fund shall be personally liable hereunder. The obligations of the Fund are not personally binding upon, nor shall resort to the private property of, any of the members of the Board of the Fund, nor of the shareholders, officers, employees or agents of the Fund, but only the property of the applicable series of the Fund shall be bound. A copy of the Declaration of Trust and of each amendment thereto has been filed by the Trust with the Secretary of State of The Commonwealth of Massachusetts, as well as any other governmental office where such filing may from time to time be required. 23. Miscellaneous. The captions in this Agreement are included for convenience or reference only, and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 24. Notice. Any notice required or permitted to be given by a party to this Agreement or to any other party hereunder shall be deemed sufficient if delivered in person or sent by registered or certified mail postage prepaid, addressed by the party giving notice to each such other party at the address provided below or to the last address furnished by each such other party to the party giving notice. If to the Fund: 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606-5016 Attn: Secretary 9 If to Distributor: One Financial Center Boston, Massachusetts 02111 Attn: General Counsel Liberty Funds Group LLC 10 LIBERTY FUNDS DISTRIBUTOR, INC. By: /s/ James Tambone ------------------------------------------- Co-President ATTEST: LIBERTY ACORN TRUST By: /s/ Bruce H. Lauer ------------------------------------------- Vice President ATTEST: Assistant Secretary 11 Schedule A to Underwriting Agreement Between Liberty Acorn Trust and Liberty Funds Distributor, Inc. The series of the Trust covered by this agreement are: Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty Dated as of September 29, 2000. A-1 EX-99.G.5 7 dex99g5.txt AMENDMENT TO CUSTODIAN CONTRACT Exhibit g.5 AMENDMENT TO CUSTODIAN CONTRACT This Amendment to the Custodian Contract is made as of November 21, 2000, by and between Liberty Acorn Trust (formerly known as Acorn Investment Trust) (the "Fund") and State Street Bank and Trust Company (the "Custodian"). Capitalized terms used in this Amendment without definition shall have the respective meanings given to such terms in the Custodian Contract referred to below. WHEREAS, the Fund and the Custodian entered into a Custodian Contract dated as of July 1, 1992 (as amended and in effect from time to time, the "Contract"); and WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets, and the Fund has made the series described on Schedule I hereto subject to the Contract (each such series, together with all other series subsequently established by the Fund and made subject to the Contract in accordance with the terms thereof, shall be referred to as a "Portfolio", and, collectively, the "Portfolios"); and WHEREAS, the Fund and the Custodian desire to amend certain provisions of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") and the adoption of Rule 17f-7 ("Rule 17f-7") promulgated under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund and the Custodian desire to amend and restate certain other provisions of the Contract relating to the custody of assets of each of the Portfolios held outside of the United States. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Contract, pursuant to the terms thereof, as follows: I. Article 3 of the Contract is hereby deleted, and Articles 4 through 20 of the Contract are hereby renumbered, as of the effective date of this Amendment, as Articles 5 through 21, respectively. II. New Articles 3 and 4 of the Contract are hereby added, as of the effective date of this Amendment, as set forth below. 3. Provisions Relating to Rules 17f-5 and 17f-7 -------------------------------------------- 3.1. Definitions. Capitalized terms in this Amendment shall have the following ----------- 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 1 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 in Rule 17f-5 or by other appropriate action of the U.S. Securities and Exchange Commission (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. 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 of Trustees (the "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 Contract, 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 Amendment 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 Contract. Following the receipt of Proper 2 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 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. Sixty 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), as amended from time to time. (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), as amended from time to time. (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 its delegate (which shall not include the Foreign Custody Manager) shall be deemed to have considered and determined to accept such Country Risk as is incurred by 3 placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios. 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. The Foreign Custody Manager shall deliver the written reports required by this Section 3.2 to the following address, or such other address as the Fund shall from time to time reasonably request: Board of Trustees Liberty Acorn Trust c/o Liberty Wanger Asset Management, L.P. 227 West Monroe, Suite 3000 Chicago, Illinois 60606 Attention: Bruce H. Lauer 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 Contract 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. 3.3 Eligible Securities Depositories. -------------------------------- 3.3.1 Risk Analysis and Monitoring. The Custodian shall (a) provide the ---------------------------- Fund (or its duly-authorized investment manager or investment adviser) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories in accordance with 4 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 adviser) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7. A list of Eligible Securities Depositories is set forth on Schedule B, which list may be amended from time to time. 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. 4. Duties of the Custodian with Respect to Property of the Portfolios Held ----------------------------------------------------------------------- Outside the United States. ------------------------- 4.1 Definitions. Capitalized terms in this Article 4 shall have the following ----------- 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. 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. 4.3. Foreign Securities Systems. Foreign securities shall be maintained in a -------------------------- Foreign Securities System in a designated country only through arrangements implemented by the Foreign Sub-Custodian in such country pursuant to the terms of this Contract. 4.4. Transactions in Foreign Custody Account. --------------------------------------- 4.4.1. Delivery of Foreign Assets. 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 5 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; (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 a Portfolio requiring a pledge of assets by such Portfolio; (x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (xi) in connection with the lending of foreign securities; and (xii) for any other proper purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper trust 6 purpose, 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 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 Contract, 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) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (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 any other proper purpose, but only upon receipt of Proper Instructions specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper trust purpose, and naming the person or persons to whom such payment is to be made. 4.4.3. Market Conditions. Notwithstanding any provision of this Contract ----------------- 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 7 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. In the event the Custodian, in its capacity as Foreign Custody Manager, determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate as provided in Section 3.2.3(c) hereof, upon receipt of Proper Instructions the Custodian will assist the Portfolios in withdrawing their assets from such Eligible Foreign Custodian as soon as reasonably practicable. 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, except as such liability may arise from such nominee's own negligence, misfeasance, bad faith or willful misconduct. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Contract unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. 4.6 Bank Accounts. The Custodian shall identify on its books as belonging to ------------- each Portfolio 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 Contract 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. 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. 8 4.8. Shareholder Rights. With respect to the foreign securities held pursuant ------------------ to this Article 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. 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. Absent the Custodian's failure to observe the standard of care set forth in Section 14, 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. 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. 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 9 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. 4.12. Liability of Custodian. ---------------------- Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk. 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 Contract 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 Foreign Sub-Custodian has otherwise acted with reasonable care. III. Except as specifically superseded or modified herein, the terms and provisions of the Contract shall continue to apply with full force and effect. In the event of any conflict between the terms of the Contract prior to this Amendment and this Amendment, the terms of this Amendment shall prevail. If the Custodian is delegated the responsibilities of Foreign Custody Manager pursuant to the terms of Article 3 hereof, in the event of any conflict between the provisions of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail. 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 notice is hereby given that this Contract 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 Contract are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Fund. [Remainder of page is intentionally left blank] 10 IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative as of the date first above written. Witnessed By: STATE STREET BANK and TRUST COMPANY /s/ Nelson H. Graves By: /s/ Ronald E. Logue - -------------------- ------------------- Nelson H. Graves Name: Ronald E. Logue Vice President & Title: Vice Chairman and Chief Operating Officer Counsel Witnessed By: LIBERTY ACORN TRUST [Illegible] By: /s/ Bruce H. Lauer - ----------- ------------------ Name: Bruce H. Lauer Title: VICE PRESIDENT Schedule I to Amendment to Custodian Contract by and between Liberty Acorn Trust and State Street Bank and Trust Company List of Series -------------- Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Argentina Citibank, N.A. Australia Westpac Banking Corporation 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 Fortis Bank nv-sa Bermuda The Bank of Bermuda Limited Bolivia Citibank, N.A. Botswana Barclays Bank of Botswana Limited Brazil Citibank, N.A. Bulgaria ING Bank N.V. Canada State Street Trust Company Canada Chile Citibank, N.A. People's Republic The Hongkong and Shanghai of China Banking Corporation Limited, Shanghai and Shenzhen branches Colombia Cititrust Colombia S.A. Sociedad Fiduciaria 1 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Costa Rica Banco BCT S.A. Croatia Privredna Banka Zagreb d.d Cyprus The Cyprus Popular Bank Ltd. Czech Republic Ceskoslovenska Obchodni Banka, A.S. Denmark Den Danske Bank Ecuador Citibank, N.A. Egypt Egyptian British Bank S.A.E. (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Estonia Hansabank Finland Merita Bank Plc. France BNP Paribas, S.A. Germany Dresdner Bank AG Ghana Barclays Bank of Ghana Limited Greece National Bank of Greece S.A. Hong Kong Standard Chartered Bank Hungary Citibank Rt. 2 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Iceland Icebank Ltd. India Deutsche Bank AG The Hongkong and Shanghai Banking Corporation Limited Indonesia Standard Chartered Bank Ireland Bank of Ireland Israel Bank Hapoalim B.M. Italy BNP Paribas, Italian Branch Ivory Coast Societe Generale de Banques en Cote d'Ivoire Jamaica Scotiabank Jamaica Trust and Merchant Bank Ltd. Japan The Fuji Bank, Limited The Sumitomo Bank, Limited Jordan HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Kazakhstan HSBC Bank Kazakhstan Kenya Barclays Bank of Kenya Limited Republic of Korea The Hongkong and Shanghai Banking Corporation Limited 3 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Latvia A/s Hansabanka Lebanon HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Lithuania Vilniaus Bankas AB Malaysia Standard Chartered Bank Malaysia Berhad Mauritius The Hongkong and Shanghai Banking Corporation Limited Mexico Citibank Mexico, S.A. Morocco Banque Commerciale du Maroc Namibia Standard Bank Namibia Limited Netherlands Fortis Bank (Nederland) N.V. New Zealand ANZ Banking Group (New Zealand) Limited Nigeria Stanbic Merchant Bank Nigeria Limited Norway Christiania Bank og Kreditkasse ASA Oman HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Pakistan Deutsche Bank AG Palestine HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) 4 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Panama BankBoston, N.A. Peru Citibank, N.A. Philippines Standard Chartered Bank Poland Citibank (Poland) S.A. Portugal Banco Comercial Portugues Qatar HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Romania ING Bank N.V. Russia Credit Suisse First Boston AO - Moscow (as delegate of Credit Suisse First Boston -Zurich) Singapore The Development Bank of Singapore Limited Slovak Republic Ceskoslovenska Obchodni Banka, A.S. Slovenia Bank Austria Creditanstalt d.d - Ljubljana South Africa Standard Bank of South Africa Limited Spain Banco Santander Central Hispano S.A. Sri Lanka The Hongkong and Shanghai Banking Corporation Limited Swaziland Standard Bank Swaziland Limited 5 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Sweden Skandinaviska Enskilda Banken Switzerland UBS AG Taiwan - R.O.C. Central Trust of China Thailand Standard Chartered Bank Trinidad & Tobago Republic Bank Limited Tunisia Banque Internationale Arabe de Tunisie Turkey Citibank, N.A. Ukraine ING Bank Ukraine United Kingdom State Street Bank and Trust Company, London Branch Uruguay BankBoston, N.A. Venezuela Citibank, N.A. Vietnam The Hongkong and Shanghai Banking Corporation Limited Zambia Barclays Bank of Zambia Limited Zimbabwe Barclays Bank of Zimbabwe Limited 6 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian Argentina Caja de Valores S.A. Australia Austraclear Limited Reserve Bank Information and Transfer System Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank Division) Belgium Caisse Interprofessionnelle de Depots et de Virements de Titres, S.A. Banque Nationale de Belgique Brazil Companhia Brasileira de Liquidacao a Custodia Bulgaria Central Depository AD Bulgarian National Bank Canada Canadian Depository for Securities Limited Chile Deposito Central de Valores S.A. People's Republic Shanghai Securities Central Clearing & of China Registration Corporation Shenzhen Securities Central Clearing Co., Ltd. Colombia Deposito Centralizado de Valores Costa Rica Central de Valores S.A. STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian Croatia Ministry of Finance National Bank of Croatia Sredisnja Depozitarna Agencija d.d Czech Republic Stredisko cennych papiru Czech National Bank Denmark Vaerdipapircentralen (Danish Securities Center) Egypt Misr for Clearing, Settlement, and Depository Estonia Eesti Vaartpaberite Keskdepositoorium Finland Finnish Central Securities Depository France Societe Interprofessionnelle pour la Compensation des Valeurs Mobilieres Germany Clearstream Banking AG, Frankfurt Greece Bank of Greece, System for Monitoring Transactions in Securities in Book-Entry Form Apothetirion Titlon AE - Central Securities Depository Hong Kong Central Clearing and Settlement System Central Moneymarkets Unit Hungary Kozponti Elszamolohaz es Etrtektar (Budapest) Rt. (KELER) STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian India National Securities Depository Limited Central Depository Services India Limited Reserve Bank of India Indonesia Bank Indonesia PT Kustodian Sentral Efek Indonesia Ireland Central Bank of Ireland Securities Settlement Office Israel Tel Aviv Stock Exchange Clearing House Ltd. (TASE Clearinghouse) Italy Monte Titoli S.p.A. Banca d'Italia Ivory Coast Depositaire Central - Banque de Reglement Jamaica Jamaica Central Securities Depository Japan Japan Securities Depository Center (JASDEC) Bank of Japan Net System Kazakhstan Central Depository of Securities Kenya Central Bank of Kenya Republic of Korea Korea Securities Depository Latvia Latvian Central Depository STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian Lebanon Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (Midclear) S.A.L. Banque du Liban Lithuania Central Securities Depository of Lithuania Malaysia Malaysian Central Depository Sdn. Bhd. Bank Negara Malaysia, Scripless Securities Trading and Safekeeping System Mauritius Central Depository and Settlement Co. Ltd. Bank of Mauritius Mexico S.D. INDEVAL (Instituto para el Deposito de Valores) Morocco Maroclear Netherlands Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (NECIGEF) New Zealand New Zealand Central Securities Depository Limited Nigeria Central Securities Clearing System Limited Norway Verdipapirsentralen (Norwegian Central Securities Depository) Oman Muscat Depository & Securities Registration Company, SAOC STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian Pakistan Central Depository Company of Pakistan Limited State Bank of Pakistan Palestine Clearing Depository and Settlement, a department of the Palestine Stock Exchange Peru Caja de Valores y Liquidaciones, Institucion de Compensacion y Liquidacion de Valores SA Philippines Philippine Central Depository, Inc. Registry of Scripless Securities (ROSS) of the Bureau of Treasury Poland National Depository of Securities (Krajowy Depozyt Papierow Wartoeciowych SA) Central Treasury Bills Registrar Portugal Central de Valores Mobiliarios Qatar Central Clearing and Registration (CCR), a department of the Doha Securities Market Romania National Securities Clearing, Settlement and Depository Company Bucharest Stock Exchange Registry Division National Bank of Romania Singapore Central Depository (Pte) Limited Monetary Authority of Singapore STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian Slovak Republic Stredisko cennych papierov National Bank of Slovakia Slovenia Klirinsko Depotna Druzba d.d. South Africa Central Depository Limited Share Transactions Totally Electronic (STRATE) Ltd. Spain Servicio de Compensacion y Liquidacion de Valores, S.A. Banco de Espana, Central de Anotaciones en Cuenta Sri Lanka Central Depository System (Pvt) Limited Sweden Vardepapperscentralen VPC AB (Swedish Central Securities Depository) Switzerland SegaIntersettle AG (SIS) Taiwan - R.O.C. Taiwan Securities Central Depository Co., Ltd. Thailand Thailand Securities Depository Company Limited Tunisia Societe Tunisienne Interprofessionelle pour la Compensation et de Depots des Valeurs Mobilieres Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK) Central Bank of Turkey STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Subcustodian Ukraine National Bank of Ukraine United Kingdom Central Gilts Office and Central Moneymarkets Office Venezuela Banco Central de Venezuela Zambia LuSE Central Shares Depository Limited Bank of Zambia TRANSNATIONAL Euroclear Clearstream Banking AG SCHEDULE C MARKET INFORMATION Publication/Type of Information Brief Description - ------------------------------- ----------------- (Frequency) The Guide to Custody in World Markets An overview of safekeeping and - ------------------------------------- settlement practices and procedures (annually) in each market in which State Street Bank and Trust Company offers custodial services. Global Custody Network Review Information relating to the - ----------------------------- operating history and structure of (annually) depositories and subcustodians located in the markets in which State Street Bank and Trust Company offers custodial services, including transnational depositories. Global Legal Survey With respect to each market in - ------------------- which State Street Bank and Trust (annually) Company offers custodial services, opinions relating to whether local law restricts (i) access of a fund's independent public accountants to books and records of a Foreign Sub Custodian or Foreign Securities System, (ii) the Fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (iii) the 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 subcustodian - ----------------------- contracts State Street Bank and (annually) Trust Company has entered into with each subcustodian in the markets in which State Street Bank and Trust Company offers subcustody services to its US mutual fund clients. Network Bulletins (weekly): Developments of interest to investors in the markets in which State Street Bank and Trust Company offers custodial services. Foreign Custody Advisories (as necessary): With respect to markets in which State Street Bank and Trust Company offers custodial services which exhibit special custody risks, developments which may impact State Street's ability to deliver expected levels of service. EX-99.H 8 dex99h.txt TRANSFER AGENCY AND SERVICE AGREEMENT Exhibit h. SHAREHOLDERS' SERVICING AND TRANSFER AGENT AGREEMENT Agreement is hereby made between Liberty Acorn Trust (the "Trust"), a Massachusetts business trust and Liberty Funds Services, Inc. ("LFS"), a Massachusetts corporation. The Trust may offer an unlimited number of separate investment series ("Funds"), each of which may have multiple classes of shares. "Fund" shall be substituted for "Trust" in the Agreement except when not applicable in context. This agreement is dated as of September 29, 2000. WHEREAS, the Trust has appointed LFS as Transfer Agent, Registrar and Dividend Disbursing Agent for each series of the Trust listed in Schedule A, each a registered investment company, WHEREAS, LFS desires to accept such appointment and to perform such services upon the terms and subject to the conditions set forth herein; and WHEREAS, Liberty Wanger Asset Management ("Liberty WAM") is the investment adviser to the Fund and Liberty Funds Distributor, Inc. is the principal distributor ("Distributor") of its shares. NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. Appointment. The Trust hereby appoints LFS to act as its agent in ----------- respect of the purchase, redemption and transfer of Fund shares and dividend disbursing services in connection with such shares. LFS accepts such appointment and will perform the duties and functions described herein in the manner hereinafter set forth. LFS agrees to provide the necessary facilities, equipment and personnel to perform its duties and obligations hereunder in accordance with the practice of transfer agents of investment companies registered with the Securities and Exchange Commission and in compliance with all laws applicable to mutual fund transfer agents and the Fund. LFS agrees that it shall perform usual and ordinary services as transfer agent, registrar and dividend disbursing agent, and, as relevant, agent in connection with accumulation, open-account or similar plan (including without limitation any systematic withdrawal plan) for Fund shares and omnibus accounts holding Fund shares for which other financial institutions, as described in the Fund's Prospectus(es) and Statement(s) of Additional Information from time to time, provide such services for Fund shares held in the omnibus accounts. The services, which are necessary and appropriate for investment companies registered with the Securities and Exchange Commission, except as otherwise specifically excluded herein, include but are not limited to: receiving and processing payments for purchases of Fund shares, opening shareholder accounts, receiving and processing requests for liquidation of Fund shares, transferring and canceling stock certificates, maintaining all shareholder accounts, preparing annual shareholder meetings lists, mailing proxy materials, receiving and tabulating proxies, mailing shareholder reports and prospectuses, account research, shareholder correspondence and telephone services, providing order room services to brokers, withholding taxes on accounts, disbursing income dividends and capital gains distributions, preparing and filing U.S. Treasury Department Forms 1099 for shareholders, preparing and mailing confirmation forms to shareholders for all purchases and liquidations of Fund shares and other confirmable transactions in shareholder accounts, recording reinvestment of dividends and distributions in Fund shares, and causing liquidation of shares and disbursements to be made to withdrawal plan holders. 2. Fees and Charges. The Trust will pay LFS for the services provided ---------------- hereunder in accordance with and in the manner set forth in Schedule B to this Agreement. Schedule B also sets forth the reimbursement arrangements and treatment of interest earned with respect to balances in the accounts maintained by LFS with the financial institution from time to time selected by the Trust as custodian of the Fund ("Custodian") referred to in paragraphs 8, 11 and 12 hereof. 3. Representations and Warranties of LFS. LFS represents and warrants ------------------------------------- to the Trust that: (a) It is a corporation duly organized and existing in good standing under the laws of the Commonwealth of Massachusetts; (b) It is duly qualified to carry on its business in the Commonwealth of Massachusetts; (c) It is empowered under applicable state and federal laws and by its Articles of Organization and By-Laws to enter into and perform the services contemplated by this Agreement and it is in compliance and shall continue during the term of this Agreement to be in compliance with all such applicable laws; (d) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; (e) It has and shall continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement; and 2 (f) It has filed a Registration Statement on SEC Form TA-1 and will file timely an amendment to same respecting this Transfer Agent Agreement with the Securities and Exchange Commission; it is duly registered as a transfer agent as provided in Section 17A(c) of the Securities and Exchange Act of 1934, and it will remain so registered and will comply with all state and federal laws and regulations relating to transfer agents throughout the term of this Agreement. 4. Representations and Warranties of the Trust. The Trust represents ------------------------------------------- and warrants to LFS that: (a) It is a business trust duly organized and existing and in good standing under the laws of the State of Massachusetts; (b) The Fund is an open-end management investment company registered under the Investment Company Act of 1940; (c) Registration statements under the Securities Act of 1933 are currently effective and will remain effective at all times and all notices have been filed as required under applicable state laws with respect to all shares of the Fund being offered for sale; (d) The Trust is empowered under applicable laws and regulations and by its Agreement and Declaration of Trust and By-Laws to enter into and perform this Agreement; and (e) All requisite proceedings and actions have been taken to authorize it to enter into and perform this Agreement. 5. Copies of Documents. The Trust promptly from time to time will ------------------- furnish LFS with copies of the following Trust and Fund documents and all amendments or supplements thereto: the Agreement and Declaration of Trust; the By-Laws; and the Registration Statement under Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, together with any other information reasonably requested by LFS. The Prospectus(es) and Statement(s) of Additional Information contained in such Registration Statement, as from time to time amended and supplemented, are herein collectively referred to as the "Fund's Prospectus." On or before the date of effectiveness of this Agreement, or as soon thereafter as is reasonably practicable, and from time to time thereafter, the Trust will furnish LFS with certified copies of the resolutions of the Trustees of the Trust authorizing this Agreement and designating authorized persons to give instructions to LFS; if applicable, a specimen of the certificate for shares of the Fund in the form approved by the Trustees of the Trust, with a certificate of the Secretary of the Trust as to such approval; and certificates as to any change in any officer, director, or authorized person of the Trust. 3 6. Share Certificates. Unless and until the Trustees of the Trust resolve ------------------ that all of the Trust's shares of beneficial interest, or all of the shares of a particular series or class of such shares, shall be issued in uncertificated form, LFS shall maintain a sufficient supply of blank share certificates representing such shares, in the form approved from time to time by the Trustees of the Trust. Such blank share certificates shall be properly signed, manually or by facsimile signature, by the duly authorized officers of the Trust, and shall bear the seal or facsimile thereof of the Trust; and notwithstanding the death, resignation or removal of any officer of the Trust authorized to sign such share certificates, LFS may continue to countersign certificates which bear the manual or facsimile signature of such officer until otherwise directed by the Trust. 7. Lost or Destroyed Certificates. In case of the alleged loss, theft or ------------------------------ destruction of any share certificate, no new certificate shall be issued in lieu thereof, unless there shall first be furnished to LFS an affidavit of loss or non-receipt by the holder of shares with respect to which a certificate has been lost, stolen or destroyed, supported by an appropriate bond paid for by the shareholder which is satisfactory to LFS and issued by a surety company satisfactory to LFS. LFS shall place and maintain stop transfer instructions on all lost or stolen certificates as to which it receives notice. 8. Purchases; Receipt of Funds for Investment. LFS will maintain one or ------------------------------------------ more accounts with the Custodian, or other financial institution from time to time selected by the Trust ("Bank"), in the name, or for the benefit, of the Trust, into which it will deposit funds payable to LFS or the Distributor, as agent for, or otherwise identified as being for the account of, the Trust, prior to crediting such funds to the respective accounts of the Trust and the Distributor. Thereafter, LFS will determine the amount of any such funds due the Trust (equal to the number of Trust shares sold by the Trust computed pursuant to paragraph 9 hereof, multiplied by the net asset value of Trust shares next determined after receipt of such purchase order) and the amount of funds due the Distributor (equal to the sales charge applicable to such sale, computed pursuant to the Prospectus), respectively, deposit the portion due the Distributor in its account with such bank as may from time to time be designated by the Distributor ("Distributor's Account"), deposit the net amount due the Trust in its account with the Custodian, and notify the Distributor and Custodian, respectively, (such notification to the Distributor to include the amount of such sales charge to be remitted by the Distributor to the dealer participating in the sale, of such deposits, such notification to be given as soon as practicable on each business day stating the total amount deposited to said accounts during the previous business day. 9. Shareholder Accounts. Upon receipt of any funds referred to in -------------------- paragraph 8, LFS will compute the number of shares purchased by the shareholder according to the appropriate offering price of Fund shares determined in accordance with applicable federal laws and regulations and as described in the Prospectus of the Fund, and: 4 (a) In the case of a new shareholder, open and maintain an open account for such shareholder in the name or names set forth in the subscription application form; (b) Unless the Trustees of the Trust have resolved that all of the Trust's shares of beneficial interest, or all of the shares of a particular series or class, shall be issued in uncertificated form, and if specifically requested in writing by the shareholder, countersign, issue and mail, by first class mail, to the shareholder at his or her address, a share certificate for full shares purchased; (c) Send to the shareholder a confirmation indicating the amount of full and fractional shares purchased (in the case of fractional shares, rounded to three decimal places) and the price per share; (d) In the case of a request to establish a plan or program being offered by the Fund's Prospectus, open and maintain such plan or program for the shareholder in accordance with the terms thereof; and (e) Perform such other services and initiate and maintain such other books and records as are customarily undertaken by transfer agents in maintaining shareholder accounts for registered investment company investors; all subject to requirements set forth in the Fund's Prospectus with respect to rejection of orders. For closed accounts, LFS will maintain account records through June of the calendar year following the year in which the account is closed. 10. Unpaid Checks; Accounts Assigned for Collection. If any check or ----------------------------------------------- other order for payment of money on the account of any shareholder or new investor is returned unpaid for any reason, LFS will: (a) Give prompt notification to the Distributor of such non-payment; and (b) Take such other steps, including imposition of a reasonable processing or handling fee, as LFS may, in LFS's discretion, deem appropriate, or as the Trust or the Distributor may instruct LFS, provided that any authorization to pay such order notwithstanding insufficient shareholder account funds, is expressly on the condition that the Trust or Distributor, as the case may be, shall indemnify LFS and payor bank in respect of such payment. 11. Dividends and Distributions. The Trust will promptly notify LFS of --------------------------- the declaration of any dividend or distribution with respect to Fund shares, the amount of 5 such dividend or distribution, the date each such dividend or distribution shall be paid, and the record date for determination of shareholders entitled to receive such dividend or distribution. As dividend disbursing agent, LFS will, on or about the payment date of any such dividend or distribution, notify the Custodian of the estimated amount of cash required to pay such dividend or distribution, and the Trust agrees that on or before the mailing date of such dividend or distribution it will instruct the Custodian to make available to LFS sufficient funds in the dividend and distribution account maintained by LFS with the Custodian or Bank. As dividend disbursing agent, LFS will prepare and distribute to shareholders any funds to which they are entitled by reason of any dividend or distribution and, in the case of shareholders entitled to receive additional shares by reason of any such dividend or distribution, LFS will make appropriate credits to their accounts and cause to be prepared and mailed to shareholders confirmation statements and, of such additional shares. LFS will maintain all records necessary to reflect the crediting of dividends and distributions which are reinvested in shares of the Fund. 12. Redemptions. As agent for the Trust, LFS will receive and process, in ----------- accordance with the Fund's Prospectus, share certificates and requests for redemption of shares, as follows: (a) If such certificate or request complies with standards for redemption, LFS will notify the Custodian of the actual amount of cash required to pay redemptions, and the Trust hereby instructs the Custodian to make available to LFS sufficient funds in the redemption account maintained by LFS with the Custodian or Bank. LFS will deposit any contingent deferred sales charge ("CDSC") due the Distributor in accordance with the Fund's Prospectus, in the Distributor's Account and pay to the shareholder from funds deposited from time to time in the redemption account maintained by LFS with the Custodian or Bank, the appropriate redemption price as set forth in the Fund's Prospectus; (b) If such certificate or request does not comply with the standards for redemption, LFS will promptly notify the shareholder and shall effect the redemption at the price in effect at the time of receipt of documents complying with the standard; and (c) LFS shall notify the Trust and the Distributor as soon as practicable on each business day of the total number of Trust shares and funds covered by requests for redemption which were received by LFS in proper form on the previous business day, and shall notify the Distributor of deposits to its account with respect to any CDSC. 13. Transfer and Exchanges. LFS will receive and process transfers of ---------------------- shares of the Fund and exchanges between series of the Trust and other investments as, and to the extent, permitted in the Prospectus of the Fund. If shares to be 6 transferred are represented by outstanding certificates, LFS will, upon surrender to it of the certificates in proper form for transfer, credit the same to the transferee on its books. If shares are to be exchanged, LFS will process such exchange in the same manner as a redemption and sale of shares, in accordance with the Fund's Prospectus. 14. Systematic Withdrawal Plans. LFS will administer systematic --------------------------- withdrawal plans pursuant to the provisions of withdrawal orders duly executed by shareholders and the Fund's Prospectus. Payments upon such withdrawal orders shall be made by LFS from the appropriate account maintained by the Trust with the Custodian or Bank. Prior to the payment date, LFS will withdraw from a shareholder's account and present for redemption as many shares as shall be sufficient to make such withdrawal payment pursuant to the provisions of the shareholder's withdrawal plan and the Prospectus. 15. Letters of Intent and Other Plans. LFS will process such letters of --------------------------------- intent for investing in shares as are provided for in the Prospectus, and LFS will act as escrow agent pursuant to the terms of such letters of intent duly executed by shareholders. LFS will make appropriate deposits to the account of the Distributor for the adjustment of sales charges as therein provided and will currently report the same to the Distributor, it being understood, however, that computations of any adjustment of sales charge shall be the responsibility of the Distributor or the Trust. LFS will process such accumulation plans, group programs and other plans or programs for investing in shares as are provided for the Prospectus. 16. Tax Returns and Reports. LFS will prepare and file tax returns and ----------------------- reports with the Internal Revenue Service and any other federal, state or local governmental agency which may require such filings, including state abandoned property laws, and conduct appropriate communications relating thereto, and, if required, mail to shareholders such forms for reporting dividends and distributions paid by the Fund as are required by applicable laws, rules and regulations, and LFS will withhold such sums as are required to be withheld under applicable Federal and state income tax laws, rules and regulations. LFS will also make reasonable attempt to obtain such tax withholding information from shareholders as is required to be obtained on behalf of the Trust under applicable federal or state laws. 17. Record Keeping. LFS will maintain records, which at all times will be -------------- the property of the Trust and available for inspection by the Trust and Distributor, showing for each shareholder's account the following information: (a) Name, address, and United States taxpayer identification or Social Security number, if provided (or amounts withheld with respect to dividends and distributions on shares if a taxpayer identification or Social Security number is not provided); (b) Number of shares held for which certificates have not been issued and for which certificates have been issued; 7 (c) Historical information regarding the account of each shareholder, including dividends and distributions paid, if any, and the date and price for transactions on a shareholder's account; (d) Any stop or restraining order placed against a shareholder's account; (e) Information with respect to withholdings of taxes as required under applicable Federal and state laws and regulations; (f) Any capital gain or dividend reinvestment order and plan application relating to the current maintenance of a shareholder's account; and (g) Any instructions as to letters of intent, record addresses and any correspondence or instructions relating to the current maintenance of a shareholder's account. LFS shall maintain at its expense those records necessary to carry out its duties under this Agreement; remaining records will be preserved at the Trust's expense for the periods prescribed by law. In addition, LFS shall maintain at its expense for periods prescribed by law all records which the Fund or LFS is required to keep and maintain pursuant to any applicable statute, rule or regulation, including without limitation Rule 31(a)-1 under the Investment Company Act of 1940, relating to the maintenance of records in connection with the services to be provided hereunder. At the end of the period in which records must be retained by law, such records and documents will either be provided to the Trust or destroyed in accordance with prior written authorization from the Trust. 18. Retirement Plan Services. LFS shall provide sub-accounting services ------------------------ for retirement plan shareholders representing group relationships with special recordkeeping needs. 19. Other Information Furnished. LFS will furnish to the Trust and the --------------------------- Distributor such other information, including shareholder lists and statistical information, as may be agreed upon from time to time between LFS, the Distributor or the Trust. LFS shall notify the Trust of any request or demand to inspect the share records of the Fund, and will not permit or refuse such inspection until receipt of written instructions from the Trust as to such permission or refusal unless required by law. LFS shall provide to the Trust any results of studies and evaluations of systems of internal accounting controls performed for the purpose of meeting the requirements of Regulation 240.17Ad-13(a) of the Securities Exchange Act of 1934. 20. Shareholder Inquiries. LFS will respond promptly to written --------------------- correspondence from shareholders, registered representatives of broker-dealers engaged in selling Trust shares, the Trust and the Distributor relating to its duties 8 hereunder. LFS also will respond to telephone inquiries from shareholders with respect to existing accounts. 21. Communications to Shareholders and Meetings. LFS will determine all ------------------------------------------- shareholders entitled to receive, and will cause to be addressed and mailed, all communications by the Fund to its shareholders, including quarterly and annual statements or reports, tender offer materials, proxy material for meetings, and periodic communications. LFS will cause to be received, examined and tabulated return proxy cards for meetings of shareholders and certify the vote to the Trust. 22. Insurance. LFS will not reduce or allow to lapse any of its insurance --------- coverage from time to time in effect, including but not limited to, errors and omissions, fidelity bond and electronic data processing coverage, without the prior written consent of the Trust. Attached as Schedule C to this Agreement is a list of the insurance coverage which LFS has in effect as of the date of execution of this Agreement. 24. Duty of Care and Indemnification. LFS will at all times use -------------------------------- reasonable care, due diligence and act in good faith in performing its duties hereunder. LFS will not be liable or responsible for delays or errors by reason of circumstances beyond its control, including without limitation acts of civil or military authority, national or state emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots or failure of transportation, communication or power supply. LFS may rely on certifications of those individuals designated as authorized persons to give instructions to LFS as to proceedings or facts in connection with any action taken by the shareholders of the Fund or Trustees of the Trust, and upon instructions not inconsistent with this Agreement from individuals who have been so authorized. Upon receiving authorization from an individual designated as an authorized person to give instructions to LFS, LFS may apply to counsel for the Trust, or counsel for Liberty WAM, at the Fund's expense, for advice. With respect to any action reasonably taken on the basis of such certifications or instructions or in accordance with the advice of counsel of the Trust, or counsel for Liberty WAM, the Trust will indemnify and hold harmless LFS from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses). The Trust will indemnify LFS against and hold LFS harmless from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses) in respect of any claim, demand, action or suit not resulting from LFS's bad faith, negligence, lack of due diligence or willful misconduct and arising out of, or in connection with its duties under this Agreement. LFS shall indemnify the Trust against and hold the Trust harmless from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses) in respect to any claim, demand, action or suit resulting from LFS's bad faith, negligence, lack of due diligence or willful misconduct, and arising out of, or in connection with, its duties under this Agreement. For purposes of this Transfer Agent 9 Agreement, "lack of due diligence" shall mean the processing by LFS of a Fund share transaction in accordance with a practice that is not substantially in compliance with (1) a transaction processing practice approved by the Trust's Trustees, (2) insurance coverages, or (3) generally accepted industry practices of mutual fund transfer agents. LFS shall also be indemnified and held harmless by the Trust against any loss, claim, damage, liability and expenses (including reasonable counsel fees and expenses) by reason of any act done by it in good faith with due diligence and in reasonable reliance upon any instrument or certificate for shares reasonably believed by it (a) to be genuine and (b) to be signed, countersigned or executed by any person or persons authorized to sign, countersign, or execute such instrument or certificate. In addition, the Trust will indemnify and hold LFS harmless against any loss, claim, damage, liability and expense (including reasonable counsel fees and expenses) in respect of any claim, demand, action or suit as a result of the negligence of the Fund, the Trust or Liberty WAM as a result of LFS's acting upon any instructions reasonably believed by LFS to have been executed or orally communicated by a duly authorized officer or employee of the Fund, Trust or Liberty WAM as a result of acting in reliance upon written or oral advice reasonably believed by LFS to have been given by counsel for the Fund, Trust or Liberty WAM. In any case in which a party to this Agreement may be asked to indemnify or hold harmless the other party hereto, the party seeking indemnification shall advise the other party of all pertinent facts concerning the situation giving rise to the claim or potential claim for indemnification, and each party shall use reasonable care to identify and notify the other promptly concerning any situation which presents or appears likely to present a claim for indemnification. Prior to admitting to or agreeing to settle any claim subject to this Section, each party shall give the other reasonable opportunity to defend against said claim in either party's name. 25. Termination and Amendment. This Agreement shall continue in effect ------------------------- until September 30, 2002, and will automatically be renewed for successive one year terms thereafter, effective as of the expiration of the then current term, unless terminated by not less than one hundred eighty (180) days written notice prior to any renewal date. Upon termination hereof, the Trust shall pay LFS such compensation as may be due to LFS as of the date of such termination for services rendered and expenses incurred, as described in Schedule B. This Agreement may be modified or amended from time to time by mutual agreement between the Trust and LFS. 26. Successors. In the event that in connection with termination of this ---------- Agreement a successor to any of LFS's duties or responsibilities hereunder is designated by the Trust by written notice to LFS, LFS shall promptly, at the expense of the Trust, transfer to such successor, a certificate list of the shareholders of the Fund (with name, address and taxpayer identification or Social Security number), a historical record of the account of each shareholder and the status thereof, all other relevant 10 books, records, correspondence and other data established or maintained by LFS under this Agreement in machine readable form and will cooperate in the transfer of such duties and responsibilities, and in the establishment of books, records and other data by such successor. LFS shall be entitled to reimbursement of its reasonable out- of-pocket expenses in respect of assistance provided in accordance with the preceding sentence. 27. Miscellaneous. This Agreement shall be construed in accordance with ------------- and governed by the laws of The Commonwealth of Massachusetts. 28. Liability. It is understood and expressly stipulated that neither the ---------- shareholders of the Funds which are series of the Trust nor the members of the Board of the Trust shall be personally liable hereunder. The obligations of the Trust are not personally binding upon, nor shall resort be had to the private property of, any of the members of the Board of the Trust, nor of the shareholders, officers, employees or agents of the Trust, but only the Trust's property shall be bound. A copy of the Declaration of Trust and of each amendment thereto has been filed by the Trust with the Secretary of State of The Commonwealth of Massachusetts and with the Clerk of the City of Boston, as well as any other governmental office where such filing may from time to time be required. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions of this Agreement or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. LFS shall keep confidential all records and information provided to LFS by the Trust, and prior, present or prospective shareholders of the Fund, except to the extent disclosures are required by this Agreement, by the Fund's registration statement, or by a reasonable request or a valid subpoena or warrant issued by a court, state or federal agency or other governmental authority. Neither LFS nor the Trust may use each other's name in any written material without written consent of such other party, provided, however, that such consent shall not unreasonably be withheld. LFS and the Trust hereby consent to all uses of their respective names which refer in accurate terms to appointment and duties under this Agreement or which are required by any governmental or regulatory authority including required filings. The Trust, the Fund and Liberty WAM consent to use of their respective names and logos by LFS for shareholder correspondence and statements. This Agreement shall be binding upon and shall inure to the benefit of the Trust and LFS and their respective successors and assigns. Neither the Trust nor LFS shall assign this Agreement nor its rights and obligations under this Agreement without the express written consent of the other party. 11 This Agreement may be amended only in writing by mutual agreement of the parties. Any notice and other instrument in writing authorized or required by this Agreement be given to the Trust or LFS shall be sufficiently given if addressed to that party and mailed or delivered to it at its office set forth below or at such other place as it may from time to time designate in writing. The Trust and the Funds: Liberty Acorn Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606-5016 Attn: Secretary LFS: Liberty Funds Service, Inc. One Financial Center Boston, Massachusetts 02111 Attn: Mary McKenzie IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and sealed as of the date first above written. LIBERTY ACORN TRUST By: /s/ Bruce H. Lauer ------------------------------------------ Name: Bruce H. Lauer Title: Vice President and Treasurer LIBERTY FUNDS SERVICES, INC. By: /s/ Mary D. McKenzie ------------------------------------------ Name: Mary D. McKenzie Title: President 12 Schedule A The Trust consists of the following series: Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty 13 Schedule B Terms used in the Schedule and not defined herein shall have the meaning specified in the SHAREHOLDERS' SERVICING AND TRANSFER AGENT AGREEMENT, as amended from time to time (the "Agreement"). Payments under the Agreement to LFS shall be made in the first two weeks of the month following the month in which a service is rendered or an expense incurred. This Schedule B shall be effective as of the date of the Agreement. I. Class A, Class B and Class C Shares ----------------------------------- Class A, Class B and Class C shares of each Fund that is a series of the Trust shall pay LFS for the services to be provided by LFS under the Agreement an amount equal to the sum of the following: 1. The Class's Share of LFS Compensation; PLUS 2. A transaction fee of $1.18 per Transaction occurring in the Class Accounts during any month; PLUS 3. An account fee for Open Accounts of $4.00 per annum; PLUS 4. An account fee for Closed Accounts of $1.50 per annum; PLUS 5. The Class's Allocated Share of LFS Reimbursable Out-of-Pocket Expenses. II. Class Z Shares -------------- Class Z shares of each Fund that is a series of the Trust shall pay LFS for the services to be provided by LFS under the Agreement an amount equal to the sum of the following: 1. Annual Maintenance Charges - Fees are billable on a monthly basis at -------------------------- the rate of 1/12 of the annual fee. A charge is made for an account in the month that an account opens or closes. There is a minimum monthly charge of $1500.00 per month. a. Annual Open Account Fee $14.00 per account for account base greater than 110,000 $16.00 per account for account base equal to or less than 110,000 b. Annual Closed Account Fee* $1.20 c. New Account Set up* $4.50 d. Manual Transactions* $1.75 e. Telephone Calls* $1.50 14 f. Audio Response $.15/Call *Charged per month based on volumes 2. The Class's Allocated Share of LFS Reimbursable Out-of-Pocket ------------------------------------------------------------- Expenses. -------- III. All Classes ----------- In addition, LFS shall be entitled to retain as additional compensation for its services all LFS revenues for Distributor Fees, fees for wire, telephone, redemption and exchange orders, IRA trustee agent fees and account transcripts due LFS from shareholders of any Fund and interest (net of bank charges) earned with respect to balances in the accounts referred to in paragraph 2 of the Agreement. All determinations hereunder shall be in accordance with generally accepted accounting principles and subject to audit by the Funds' independent accountants. IV. Definitions ----------- "Allocated Share" for any month means that percentage of LFS Reimbursable --------------- Out-of-Pocket Expenses which would be allocated to the Fund for such month in accordance with the methodology described in Exhibit 1 hereto. "Closed Account" is any account on the books of LFS representing record -------------- ownership of shares of a Fund which as of the first day of any calendar month has a share balance of zero and does not meet account purge criteria. The Closed Account fee shall be payable on a monthly basis, in an amount equal to 1/12 the per annum charge. "LFS Reimbursable Out-of-Pocket Expenses" means (i) out-of-pocket expenses --------------------------------------- incurred on behalf of the Fund by LFS for stationery, forms, postage and similar items; confirmation statements; investor processing; audio response; telephone; microfilm; microfiche and other expenses incurred at the specific direction of the Fund; (ii) networking account fees paid to dealer firms by LFS on shareholder accounts established or maintained pursuant to the National Securities Clearing Corporation's networking system, which fees are approved by the Trustees from time to time and (iii) fees paid by LFS or its affiliates to third-party dealer firms or transfer agents that maintain omnibus accounts with a Fund in respect of expenses similar to those referred to in clause (i) above, to the extent the Trustees have approved the reimbursement by the Fund of such fees. 15 "Distributor Fees" means the amount due LFS pursuant to any agreement with ---------------- the Fund's principal underwriter for processing, accounting and reporting services in connection with the sale of shares of the Fund. "Fund" means each of the open-end investment companies advised or ---- administered by Liberty WAM that are series of the Trusts which are parties to the Agreement. "Fund Accounts" means all Open Accounts and all Closed Accounts. ------------- "Fund's Share of LFS Compensation" for any month means 1/12 of an amount -------------------------------- equal to 0.07 percent of the average daily closing value of the total net assets of each Fund for such month. "Open Accounts" is any account on the books of LFS representing record ------------- ownership of shares of a Fund which as of the first day of any calendar month has a share balance greater than zero. The Open Account fee shall be payable on a monthly basis, in an amount equal to 1/12 the per annum change. "Transaction": means any activity that has occurred relating to any Fund ----------- Account, including all debits and credits to account balances as well as maintenance and service activities performed with respect to such Fund Account in any month. Agreed: THE TRUST ON BEHALF OF EACH FUND DESIGNATED IN SCHEDULE A FROM TIME TO TIME By: /s/ Bruce H. Lauer -------------------------------------------------- Bruce H. Lauer, Vice President and Treasurer LIBERTY FUNDS SERVICES, INC. By: /s/ Mary D. McKenzie -------------------------------------------------- Mary D. McKenzie, President 16 EXHIBIT 1 --------- METHODOLOGY OF ALLOCATING LFS REIMBURSABLE OUT-OF-POCKET EXPENSES 1. LFS Reimbursable Out-of-Pocket Expenses are allocated to the Funds as follows: A. Identifiable Based on actual services performed and invoiced to a Fund. B. Unidentifiable Allocation will be based on three evenly weighted factors. - number of shareholder accounts - number of transactions - average assets 17 EX-99.I 9 dex99i.txt CONSENT OF BELL, BOYD & LLOYD LLC Exhibit i BELL, BOYD & LLOYD LLC Three First National Plaza 70 West Madison Street, Suite 3300 Chicago, Illinois 60602-4207 312 372 1121 Fax: 312 372 2098 April 30, 2001 As counsel for Acorn Investment Trust (the "Registrant"), we consent to the incorporation by reference of our opinion for the Registrant's series designated Acorn Fund, Acorn International and Acorn USA dated April 30, 1998, filed with the Registrant's registration statement on Form N-1A on April 30, 1998, and our opinion for the Registrant's series designated Acorn Twenty and Acorn Foreign Forty dated June 2, 1998, filed with the Registrant's registration statement on Form N-1A on June 3, 1998 (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 10 dex99j.txt CONSENT OF ERNST & YOUNG LLP Exhibit j CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Financial Highlights" and "Independent Auditors" and to the use of our report dated February 23, 2001 on the 2000 financial statements of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty, comprising Liberty Acorn Trust and its incorporation by reference in the Registration Statement (Form N-1A) and in the related Prospectus and Statement of Additional Information, filed with the Securities and Exchange Commission in this Post-Effective Amendment No. 70 to the Registration Statement under the Securities Act of 1933 (Registration No. 2- 34223) and in the Amendment No. 45 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-1829). ERNST & YOUNG LLP Chicago, Illinois April 27, 2001 EX-99.M.1 11 dex99m1.txt RULE 12B-1 DISTRIBUTION PLAN DATED SEPT. 29, 2000 Exhibit m.1 Liberty Acorn Trust Rule 12b-1 Distribution Plan Liberty Acorn Trust (the Trust) hereby adopts the following distribution plan (the Plan) pursuant to Rule 12b-1 (the Rule) under the Investment Company Act of 1940 (the Act) on behalf of each Fund in the Trust designated in Appendix I, for the purpose of providing personal service and/or the maintenance of shareholder accounts and to facilitate the distribution of shares of the Funds. This Plan applies only to the Class A, Class B or Class C shares of each Fund. I. Plan Applying to Class A, B and C Shares Each Fund having Class A, B or C shares shall pay a service fee at the annual rate of 0.25% of the net assets of its Class A, B and C shares, and a distribution fee at the annual rate of 0.10% of the average daily net assets of its Class A shares and 0.75% of the average daily net assets of its Class B and C shares. Amounts payable under this paragraph are subject to any limitations on such amounts prescribed by applicable laws or rules. II. Payments of Fees Under the Plan Each Fund shall make all payments of service and distribution fees under this Plan to Liberty Funds Distributor, Inc. (LFDI) monthly, on the 20th day of each month or, if such day is not a business day, on the next business day thereafter. No Fund shall pay, nor shall LFDI be entitled to receive, any amount under this Plan if such payment would result in LFDI receiving amounts in excess of those permitted by applicable law or by rules of the National Association of Securities Dealers, Inc. III. Use of Fees LFDI may pay part or all of the service and distribution fees it receives from a Fund as commissions to financial service firms that sell Fund shares or as reimbursements to financial service firms or other entities that provide shareholder services to record or beneficial owners of shares (including third-party administrators of qualified plans). This provision does not obligate LFDI to make any such payments nor limit the use that LFDI may make of the fees it receives. IV. Reporting LFDI shall provide to the Trust's Trustees, and the Trustees shall review, at least quarterly, reports setting forth all Plan expenditures, and the purposes for those expenditures. V. Other Payments Authorized Payments by the Trust to LFDI and its affiliates other than as set forth in Section I which may be indirect financing of distribution costs of Class A, Class B or Class C shares are authorized by this Plan. VI. Effective Date This Plan shall be effective on September 29, 2000. VII. Continuation; Amendment; Termination This Plan shall continue in effect with respect to Class A, Class B and Class C shares only so long as specifically approved for that class at least annually as provided in the Rule. The Plan may not be amended to increase materially the service fee or distribution fee with respect to a class of shares without such shareholder approval as is required by the Rule and any applicable orders of the Securities and Exchange Commission, and all material amendments of the Plan must be approved in the manner described in the Rule. The Plan may be terminated with respect to any class of shares at any time as provided in the Rule without payment of any penalty. The continuance of the Plan shall be effective only if the selection and nomination of the Trust's Trustees who are not interested persons (as defined under the Act) of the Trust is effected by such non-interested Trustees as required by the Rule. Approved by the Trustees as of September 29, 2000. By: /s/ Irving B. Harris ------------------------------ 2 APPENDIX I Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty Dated as of the effective date of the Liberty Acorn Trust Rule 12b-1 Distribution Plan I-1 EX-99.M.2 12 dex99m2.txt RULE 12B-1 PLAN IMPLEMENTING AGREEMENT Exhibit m.2 LIBERTY ACORN TRUST RULE 12B-1 PLAN IMPLEMENTING AGREEMENT Liberty Acorn Trust (Trust), on behalf of each series (each a Fund) of the Trust designated in Appendix 1 from time to time, acting severally, and Liberty Funds Distributor, Inc. (LFDI), a Massachusetts corporation, agree as of the date on which LFDI becomes distributor of the shares of each Fund: 1. 12B-1 PLAN. The Trust, on behalf of its Funds, has adopted [one or ---------- more] "Rule l2b-1 Plan[s]" (each, a Plan) pursuant to Rule l2b-1 (the Rule) under the Investment Company Act of 1940 (the Act). Under the Rule, a Fund may, pursuant to a Plan, pay LFDI a specified portion of the assets attributable to a class of shares of that Fund ("Class of Shares") to be used for the purposes specified in the Plan. A Plan shall continue in effect with respect to a Class of Shares only so long as specifically approved for that Class at least annually as provided in the Rule. A Plan may not be amended to increase materially the service fee or distribution fee with respect to a Class of Shares without such shareholder approval as is required by the Rule or any applicable orders of the Securities and Exchange Commission, and all material amendments of the Plan must be approved in the manner described in the Rule. A Plan may be terminated with respect to a Class of Shares at any time as provided in the Rule without payment of any penalty. This Agreement shall apply to each Fund named in Appendix 1 as that Appendix may be amended from time to time by the parties, in writing. 2. PAYMENTS, EXPENDITURES AND REPORTS. ---------------------------------- A. Each Fund shall pay LFDI the amount then due LFDI under a Plan on the 20th day of each month, or, if such day is not a business day, the next business day thereafter, during the term of this Agreement. B. LFDI shall expend the amounts paid to it by the Funds under a Plan in its discretion, so long as such expenditures are consistent with the Rule, the Plan, and any instructions LFDI may receive from the Trustees of the Trust. C. LFDI shall make all reports required under the Act, the Rule or a Plan to the Trustees of the Trust, as provided in the Act, the Rule and any Plan or as requested by the Trustees. 3. CONTINUATION; AMENDMENT; TERMINATION; NOTICE. -------------------------------------------- A. This Agreement (i) supersedes and replaces any contract or agreement relating to the subject matter hereof in effect prior to the date hereof, (ii) shall continue in effect as to the Trust or a Fund only so long as specifically approved at least annually by the Trustees or shareholders of the Trust or Fund, and (iii) may be amended at any time by written agreement of the parties, each in accordance with the Act and the Rule. B. This Agreement (i) shall terminate with respect to any Fund or any Class of Shares immediately upon the effective date of any later dated agreement, with respect to that Fund or Class of Shares, relating to the subject matter hereof, (ii) may be terminated by the Trust with respect to one or more Funds upon 60 days' notice without penalty by a vote of the Trustees of the Trust or by LFDI or otherwise in accordance with the Act, and (iii) will terminate immediately with respect to any party in the event of its assignment by that party (as defined in the Act). Upon termination, the obligations of the parties under this Agreement shall cease except for unfulfilled obligations and liabilities arising prior to termination. C. All notices required under this Agreement shall be in writing and delivered to the office of the other party. 4. AGREEMENT AND DECLARATION OF TRUST. A copy of the document ---------------------------------- establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. As to the Trust this Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the relevant Fund. Agreed: LIBERTY ACORN TRUST LIBERTY FUNDS DISTRIBUTOR, INC. By: /s/ Bruce H. Lauer By: /s/ James Tambone --------------------------------- ------------------------------- Vice President and Treasurer Co-President 2 APPENDIX 1 Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty I-1 EX-99.N 13 dex99n.txt PLAN PURSUANT TO RULE 18F-3(D) Exhibit n. LIBERTY ACORN TRUST Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 Each Series (each a "Liberty Acorn Fund") of Liberty Acorn Trust (the "Trust") as set forth in Schedule I may from time to time issue one or more of the following classes of shares as authorized by the Board of Trustees and as provided for herein: Class A shares, Class B shares, Class C shares and Class Z shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Trust's prospectus and statement of additional information for shares of that class as from time to time in effect. The differences in expenses among these classes of shares and the conversion and exchange features of each class of shares are set forth below. These differences are subject to change, to the extent permitted by law and by the Declaration of Trust and By-laws of the Trust, by action of the Board of Trustees. This Plan shall be effective as of September 29, 2000. CLASS A SHARES Class A shares of each Liberty Acorn Fund are offered at net asset value ("NAV") plus the initial sales charges described in the Trust's prospectus and statement of additional information for Class A shares as from time to time in effect. Initial sales charges may not exceed 6.50%, and may be reduced or waived as permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940 Act") and as described in the Trust's prospectus and statement of additional information for Class A shares from time to time in effect. Purchases of $1 million to $5 million of Class A shares that are redeemed within 18 months from purchase are subject to a contingent deferred sales charge ("CDSC") of 1.00% of either the purchase price or the NAV of the shares redeemed, whichever is less. Purchases in excess of $5 million of Class A shares that are redeemed within 18 months from purchase are subject to a CDSC of 1.00% only on assets redeemed below the $5 million level. The CDSC may be reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as described in the Trust's prospectus and statement of additional information for Class A shares as from time to time in effect. Class A shares pay distribution and service fees pursuant to a plan adopted pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plan") as described in the Trust's prospectus and statement of additional information for Class A shares in effect from time to time. Such fees may be in amounts up to but may not exceed, respectively, 0.10% and 0.25% per annum of the average daily net assets attributable to such class. Class A shares pay (i) a share of transfer agency fees and expenses allocable to Class A, Class B and Class C shares in the aggregate, pro rated based on relative net assets, and (ii) service fees equaling a portion of the transfer agency fee attributable to Class A shares as described in the Trust's prospectus and statement of additional information for Class A shares in effect from time to time. Class A shares of a Liberty Acorn Fund may be exchanged, at the holder's option, for Class A shares of any other fund (each, including each Liberty Acorn Fund, a "Liberty Fund" and together, "Liberty Funds") distributed by Liberty Funds Distributor, Inc. ("LFDI") or its successor, which offers Class A shares, without the payment of a sales charge, except to the extent such an exchange is limited by the Trust's prospectus for Class A shares as from time to time in effect and except further that if Class A shares of any non-money market Liberty Fund are exchanged within five months after purchase for shares of another Liberty Fund with a higher sales charge, then the difference in sales charges must be paid on the exchange. No CDSC shall be charged on the exchange of Class A shares of a Liberty Acorn Fund for Class A shares of another Liberty Fund. If the Class A shares received in the Exchange are subsequently redeemed, the amount of the CDSC, if any, will be determined by the schedule of the Liberty Fund in which the original investment was made, and the holding period for determining the CDSC will include the holding period of the shares exchanged. CLASS B SHARES Class B shares of each Liberty Acorn Fund are offered at NAV, without an initial sales charge. Class B shares that are redeemed within the period of time after purchase (not more than 6 years) specified in the Trust's prospectus and statement of additional information for Class B shares as from time to time in effect are subject to a CDSC of up to 5% of either the purchase price or the NAV of the shares redeemed, whichever is less; such percentage may be lower for certain Funds and declines the longer the shares are held, all as described in the Trust's prospectus and statement of additional information for Class B shares as from time to time in effect. Class B shares purchased with reinvested distributions are not subject to a CDSC. The CDSC is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Trust's prospectus and statement of additional information for Class B shares as from time to time in effect. Class B shares pay distribution and service fees pursuant to a 12b-1 Plan as described in the Trust's prospectus and statement of additional information for Class B shares in effect from time to time. Such fees may be in amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum of the average daily net assets attributable to such class. Class B shares pay (i) a share of transfer agency fees and expenses allocable to Class A, Class B and Class C shares in the aggregate, pro rated based on relative net assets and (ii) service fees equaling a portion of the transfer agency fee attributable to Class B shares as described in the Trust's prospectus and statement of additional information for Class B shares in effect from time to time. Class B shares of a Liberty Acorn Fund automatically convert to Class A shares of the same Liberty Acorn Fund eight or fewer years after purchase, except that Class B shares purchased through the reinvestment of dividends and other distributions on Class B shares convert to Class A shares proportionally to the amount of Class B shares otherwise being converted. 2 Class B shares of a Liberty Acorn Fund may be exchanged, at the holder's option, for Class B shares of any other Liberty Fund offering Class B shares, except to the extent such an exchange is limited by the Trust's prospectus as from time to time in effect, without the payment of a CDSC. The holding period for determining the CDSC and the conversion to Class A shares for the Class B shares received in the exchange will include the holding period of the shares exchanged. If the Class B shares received in the exchange are subsequently redeemed, the amount of the CDSC, if any, will be determined by the schedule of the Liberty Fund in which the original investment was made. CLASS C SHARES Class C shares of each Liberty Acorn Fund are offered at NAV without an initial sales charge. Class C shares that are redeemed within up to three years from purchase may be subject to a CDSC of 1% of either the purchase price or the NAV of the shares redeemed, whichever is less. Class C shares purchased with reinvested dividends or capital gain distributions are not subject to a CDSC. The CDSC may be reduced or waived in certain circumstances as permitted by Rule 6c-10 under the 1940 Act and as described in the Trust's prospectus and statement of additional information for Class C shares as from time to time in effect. Class C shares pay distribution and service fees pursuant to a 12b-1 Plan as described in the Trust's prospectus and statement of additional information for Class C shares in effect from time to time. Such fees may be in amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum of the average daily net assets attributable to such class. Class C shares pay (i) a share of transfer agency fees and expenses allocable to Class A, Class B and Class C shares in the aggregate, pro rated based on relative net assets, and (ii) service fees equaling a portion of the transfer agency fee attributable to Class C shares as described in the Trust's prospectus and statement of additional information for Class C shares in effect from time to time. Class C shares of a Liberty Acorn Fund may be exchanged, at the holder's option, for Class C shares of any other Liberty Fund offering Class C shares, except to the extent such an exchange is limited by the Trust's prospectus for Class C shares as from time to time in effect, without the payment of a CDSC. If the Class C shares received in the exchange are subsequently redeemed, the amount of the CDSC, if any, will be determined by the schedule of the Liberty Fund in which the original investment was made, and the holding period for determining the CDSC will include the holding period of the shares exchanged. Only one exchange of any Liberty Fund Class C shares may be made in any three-month period. For this purpose, an exchange into a Liberty Fund and a prior or subsequent exchange out of a Liberty Fund constitute an "exchange." CLASS Z SHARES Class Z shares of each Liberty Acorn Fund are offered at NAV, without an initial sales charge, 12b-1 fee or CDSC. Class Z shares of a Liberty Acorn Fund may be exchanged, at the holder's option, for Class Z shares of any other Liberty Fund offering Class Z shares or for Class A shares of any other Liberty Fund not offering Class Z shares and offering Class A shares, except to the 3 extent such exchange is limited by the Trust's prospectus for Class Z shares as from time to time in effect, without the payment of a sales charge. Class Z shares pay all transfer agency fees and expenses specifically allocable to Class Z shares. Approved by the Trustees as of September 29, 2000 By: /s/ Irving B. Harris --------------------------------------------- 4 SCHEDULE I Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty EX-99.P.1 14 dex99p1.txt CODE OF ETHICS, AS AMENDED SEPT. 29, 2000 Exhibit p.1 Effective Date: September 29, 2000 Liberty Wanger Asset Management, L.P. Wanger Advisors Trust Liberty Acorn Trust CODE OF ETHICS -------------- This Code of Ethics ("Code") has been adopted by Liberty Wanger Asset Management, L.P. ("Liberty WAM"). The Code applies to all employees of Liberty WAM and all officers and trustees of Liberty Acorn Trust ("Liberty Acorn") and Wanger Advisors Trust ("WAT") except those trustees who are not "interested persons" of Liberty Acorn or WAT, respectively, or of Liberty WAM, as defined in the Investment Company Act of 1940 (the "Investment Company Act") and rules thereunder. The policy of Liberty WAM is to avoid any conflict of interest, or the appearance of any conflict of interest, between the interests of Liberty WAM, or its officers, partners and employees, and the interests of Liberty Acorn, WAT or Liberty WAM's advisory clients ("Clients"). The Investment Company Act and Investment Advisers Act and rules require that Liberty WAM, Liberty Acorn and WAT 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 Clients might take advantage of that knowledge for their own benefit. Implementation and monitoring of these standards inevitably places some restrictions on the freedom of the investment activities of those people. This Code of Ethics has been adopted by Liberty WAM to meet those concerns and legal requirements. Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to Liberty WAM's designated compliance officer or chief operating officer. If none of them are available, questions should be directed to [the Legal Department of Liberty Financial Services, Inc. or] counsel for Liberty WAM. 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 Clients to: a. employ any device, scheme or artifice to defraud Clients; b. make any untrue statement of a material fact, omit to state a material fact or in any way mislead Clients regarding a material fact; c. engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon Clients; or d. engage in any manipulative practice with respect to Clients. Personal Securities Transactions. The Code regulates the personal securities transactions as a part of the effort by Liberty WAM to detect and prevent conduct that might violate the general prohibitions outlined above. A personal securities transaction is a transaction in a security in which the person subject to this Code has a beneficial interest. 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 action 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 Clients must take precedence over any personal transaction. The people subject to this Code owe a duty to Clients to conduct their personal securities transactions in a manner which does not interfere with Clients' portfolio transactions or otherwise take inappropriate advantage of their relationship to Clients. Personal securities transactions must comply with the Code of Ethics and should avoid any actual or potential conflict of interest between your interests and Clients' interests. Situations not specifically governed by this Code of Ethics will be resolved in light of this general principle. II. HOW THE CODE'S RESTRICTIONS APPLY The restrictions on personal securities transactions in Section III and the compliance procedures in Section IV differentiate among groups of people based on their positions and responsibilities with Liberty WAM. The groups are: investment personnel and access personnel. A. Investment personnel (individually, an "investment person") are those who make, or participate in making, investment decisions for Clients, or who, because of their positions with Liberty WAM, have a heightened duty to Clients or who can be expected to have more information about Clients' portfolio transactions. Investment personnel are: . Liberty WAM portfolio managers; . Liberty WAM analysts; . Liberty WAM traders; . Liberty WAM portfolio accounting personnel; 2 . Liberty WAM support staff working directly with portfolio managers, analysts, or traders; and . Liberty WAM partners and officers of Liberty WAM. B. Access personnel are all employees of Liberty WAM who are not investment personnel described above. III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS A. No transactions with Clients. No investment person or access person shall knowingly sell to or purchase from a Client any security or other property, except securities issued by that Client. B. No conflicting transactions. No investment person or access person shall purchase or sell any security, other than a listed index option or futures contract, in which such person 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 a Client, until all Clients' transactions have been completed or consideration of such transactions has been abandoned. C. Initial public offerings. No investment person or access person shall acquire any security in an initial public offering, except (i) with the prior consent of the compliance officer or chief operating officer based on a determination that the acquisition does not conflict with the Code or its underlying policies, or the interests of Liberty WAM or its Clients, and (ii) in circumstances in which the opportunity to acquire the security has been made available to the person for reasons other than the person's relationship with Liberty WAM or its Clients. Such circumstances might include, for example: . an opportunity to acquire securities of an insurance company converting from a mutual ownership structure to a stockholder ownership structure, if the person's ownership of an insurance policy issued by the IPO company or an affiliate of the IPO company conveys the investment opportunity; . an opportunity resulting from the person's pre-existing ownership of an interest in the IPO company or an investor in the IPO company; . an opportunity made available to the person's spouse, in circumstances permitting the compliance officer or chief operating officer reasonably to determine that the opportunity is being made available for reasons other than the person's relationship with Liberty WAM or its Clients (for example, because of the spouse's employment). D. Private placements. No investment person or access person shall acquire 3 any security in a private placement without the express written prior approval of the designated compliance officer or chief operating officer. In deciding whether that approval should be granted, each of those persons will consider whether the investment opportunity should be reserved for Clients, and whether the opportunity has been offered because of the person's relationship with Clients. An investment person who has been authorized to acquire a security in a private placement must disclose that investment if he or she later participates in consideration of an investment in that issuer by Clients. Any investment decision for Clients relating to that security must be made by other investment personnel. E. Short-term trading. No investment person may profit from the purchase and sale, or sale and purchase, of the same (or equivalent) securities within 60 days. Any profit so realized will be required to be donated to a charitable organization selected by the investment person and approved by Liberty WAM's compliance officer or chief operating officer. This restriction does not apply to any profits from short- term trading in listed index options or futures contracts, or to any transaction which has received the prior approval of the compliance officer or chief operating officer. F. Gifts. No investment person or 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 Liberty WAM, or seeks to do business with or on behalf of Liberty WAM. Gifts in excess of this value must either be returned to the donor or paid for by the recipient. It is not the intent of the code to prohibit the everyday courtesies of business life. Therefore, excluded from this prohibition 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. G. Service as a director. No investment person or access person may serve as member of the board of directors or trustees of any business organization, other than a civic or charitable organization, without the prior written approval of the compliance officer or chief operating officer based on a determination that the board service would not be inconsistent with the interests of Liberty WAM or of its Clients. If an investment person is serving as a board member, that investment person shall not participate in making investment decisions relating to the securities of the company on whose board he or she sits. IV. COMPLIANCE PROCEDURES A. Execution of personal securities transactions. All personal securities transactions must be conducted through brokerage accounts that have been identified to the compliance officer. Each such brokerage account must be set up to deliver duplicate copies of all confirmations and statements to the compliance officer. No exceptions to this policy will be made. B. Preclearance. Except as provided below, all personal securities 4 transactions for investment personnel and access personnel must be cleared in advance by the compliance officer or chief operating officer (personal securities transactions for each of whom must be precleared in advance by one of the others). If the proposed trade is not executed within two business days after preclearance, the preclearance will expire and the request must be made again. Transactions in the following securities are exempt from the preclearance requirement but are subject to all other provisions of the Code, including Sections III and IV: 1. securities listed as exempt in Section V; 2. municipal securities; 3. straight debt securities; 4. listed index options and futures; 5. short sales of, or transactions that close or have the economic effect of closing a short position in, securities not held in the portfolio of, or under consideration for purchase by, any Client; and 6. transactions in an account (including an investment advisory account, trust account or other account) of such person (either alone or with others) over which a person other than the investment person or access person (including an investment adviser or trustee) exercises investment discretion if: . the investment person or access person does not know of the proposed transaction until after the transaction has been executed; . the investment person or access person has previously identified the account to Liberty WAM's compliance officer and has affirmed to the compliance officer that (in some if not all cases) he or she does not know of proposed transactions in that account until after they are executed. This exclusion from the preclearance requirement is based upon the employee not having knowledge of any transaction until after that transaction is executed. Therefore, notwithstanding this general exclusion, if the investment person or access person becomes aware of any transaction in such investment advisory account before it is executed, the investment person must seek preclearance of that transaction before it is executed. C. Blackout periods. 5 1. Investment personnel. No personal securities transaction of an -------------------- investment person will be cleared (as provided in B., above) if any Client (1) has a conflicting order pending or (2) is actively considering a purchase or sale of the same security. A conflicting order is any order for the same security, or for an option on or a warrant for that security, which has not been fully executed. A purchase or sale of a security is being "actively considered" (a) when a recommendation to purchase or sell has been made for any Client and is pending, or, (b) with respect to the person making the recommendation, when that person is seriously considering making the recommendation. Absent extraordinary circumstances, a personal securities transaction for an investment person will not be approved until the sixth business day after completion of any transaction for any Client. 2. Access personnel. No personal securities transaction of an access ---------------- person may be executed on a day during which any Client has a pending order in the same security until that order is fully executed or withdrawn. D. Disclosure of personal holdings. Each investment person and access person shall disclose his or her personal securities holdings no later than ten days after commencement of employment with Liberty WAM (Attachment A), and annually thereafter (Attachment B) as of December 31 of each year. Annual reports shall be delivered to the compliance officer no later than January 30 of the following year. E. Reporting personal securities transactions. 1. Each investment person and access person shall (i) identify to Liberty WAM any brokerage or other account in which the person has a beneficial interest and (ii) instruct the broker or custodian to deliver to Liberty WAM's compliance officer duplicate confirmations of all transactions and duplicate monthly statements. 2. Each investment person and access person shall report all personal securities transactions during a month to the designated compliance officer no later than ten days after the end of the month. Monthly transaction reports shall include the following information: For each transaction: . the date of the transaction; . title, interest rate and maturity date (if applicable), number of shares and the principal amount of each security involved; 6 . the nature of the transaction (i.e., purchase, sale, gift, -------- ---- or other type of acquisition or disposition); . the price at which the transaction was effected; . the name of the broker, dealer or bank with or through which the transaction was effected; and . the date the report is submitted. In addition, for each account established during the month in which securities are held for the benefit of an investment person or access person, the monthly report shall include: . the name of the broker, dealer or bank with whom the account was established; . the date the account was established; and . the date the report is submitted. 3. Reports relating to the personal securities transactions of the compliance officer shall be delivered to the chief operating officer. F. Reports may be in any form. Monthly transaction reports filed by investment or access personnel pursuant to Section IV(E)(2) of this Code may be in any form (including copies of confirmations or account statements) including the information required by Section IV(E)(2). An investment person or access person will be deemed to have satisfied the monthly reporting requirement, and is not required to file a monthly report of any transactions: (1) executed through Liberty WAM's trading desk, for which the trading department will provide to Liberty WAM's compliance department information about transactions; or (2) executed through brokerage or other accounts identified to Liberty WAM and for which duplicate monthly account statements showing all transactions are delivered to Liberty WAM. Any personal securities transaction of an investment person or access person which for any reason does not appear in the trading or brokerage records described above shall be reported as required by Section IV(E)(2) of this Code. G. Monitoring of transactions. Liberty WAM's compliance officer will monitor the trading patterns of investment personnel and access personnel. The trading of the compliance officer will be monitored by the chief operating officer. 7 H. Certification of compliance. Each investment person and access person 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. Each investment person and access person is also required to certify annually that he or she has disclosed or reported all personal securities transactions required to be disclosed or reported under the code. To accomplish this, the compliance officer shall annually distribute a copy of the code and request certification by all covered persons. The compliance officer shall be responsible for ensuring that all personnel comply with the certification requirement. Each investment person and 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. I. Review by the Funds' Boards. The officers of Liberty Acorn and WAT shall prepare an Annual Issues and Certification Report to the board that: 1. summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; 2. describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed; 3. certifies to the board that the Fund has adopted procedures reasonably necessary to prevent its investment persons and access persons from violating the Code; and 4. 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: 8 1. U.S. government securities; 2. shares of open-end investment companies (mutual funds), including but not limited to shares of any mutual fund managed by Liberty WAM; and 3. bank certificates of deposit or commercial paper. C. Purchases or sales over which persons subject to this Code have no control; D. Purchases which 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; and F. Purchases or sales which receive the prior approval of the compliance officer or chief operating officer because they are not inconsistent with this Code or the provisions of Rule 17j-l(a) under the Investment Company Act of 1940. A copy of Rule 17j-1 is attached as Appendix B. VI. CONSEQUENCES FOR FAILURE TO COMPLY WITH THE CODE Compliance with this Code of Ethics is a condition of employment by Liberty WAM and retention of office as a trustee or officer of Liberty Acorn or WAT. Taking into consideration all relevant circumstances, the executive committee of Liberty WAM will determine what action is appropriate for any breach of the provisions of the Code. Possible actions include letters of sanction, suspension, termination of employment, or removal from office. Reports filed pursuant to the Code will be maintained in confidence but will be reviewed by Liberty WAM to verify compliance with the Code. Additional information may be required to clarify the nature of particular transactions. VII. RETENTION OF RECORDS The compliance officer shall maintain the records listed below for a period of six years at Liberty WAM'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; D. a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period; and 9 E. records evidencing prior approval of, and the rationale supporting, an acquisition by an investment person or access person of securities in a private placement. Adopted effective September 29, 2000 10 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: . 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); . 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); . 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. . 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; . securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; . securities held by a personal holding company controlled by you alone or jointly with others; . 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 . 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: Appendix A . 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 . 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. 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 Liberty WAM's designated compliance officer or chief operating officer. Appendix B (S) 270.17j-1 Personal investment activities of investment company personnel. (a) Definitions. For purposes of this section: (1) Access Person means: (i) Any director, officer, general partner or Advisory Person of a Fund or of a Fund's investment adviser. (A) If an investment adviser is primarily engaged in a business or businesses other than advising Funds or other advisory clients, the term Access Person means any director, officer, general partner or Advisory Person of the investment adviser who, with respect to any Fund, makes any recommendation, participates in the determination of which recommendation will be made, or whose principal function or duties relate to the determination of which recommendation will be made, or who, in connection with his or her duties, obtains any information concerning recommendations on Covered Securities being made by the investment adviser to any Fund. (B) An investment adviser is "primarily engaged in a business or businesses other than advising Funds or other advisory clients" if, for each of its most recent three fiscal years or for the period of time since its organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of its total sales and revenues and more than 50 percent of its income (or loss), before income taxes and extraordinary items, from the other business or businesses. (ii) Any director, officer or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by the Fund for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities. (2) Advisory Person of a Fund or of a Fund's investment adviser means: (i) Any employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to the purchases or sales; and (ii) Any natural person in a control relationship to the Fund or investment adviser who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund. (3) Control has the same meaning as in section 2(a)(9) of the Act [15 U.S.C. 80a-2(a)(9)]. (4) Covered Security means a security as defined in section 2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], except that it does not include: (i) Direct obligations of the Government of the United States; Appendix B (ii) Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) Shares issued by open-end Funds. (5) Fund means an investment company registered under the Investment Company Act. (6) An Initial Public Offering means an offering of securities registered under the Securities Act of 1933 [15 U.S.C. 77a], 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 [15 U.S.C. 78m or 78o(d)]. (7) Investment Personnel of a Fund or of a Fund's investment adviser means: (i) Any employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund. (ii) Any natural person who controls the Fund or investment adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund. (8) A Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, rule 505, or rule 506 [17 CFR 230.504, 230.505, or 230.506] under the Securities Act of 1933. (9) Purchase or sale of a Covered Security includes, among other things, the writing of an option to purchase or sell a Covered Security. (10) Security Held or to be Acquired by a Fund 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 described in paragraph (a)(10)(i) of this section. (b) Unlawful Actions. It is unlawful for any affiliated person of or principal underwriter for a Fund, or any affiliated person of an investment adviser of or principal underwriter for a Fund, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Fund: (1) To employ any device, scheme or artifice to defraud the Fund; (2) To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the B-14 Appendix B circumstances under which they are made, not misleading; (3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or (4) To engage in any manipulative practice with respect to the Fund. (c) Code of Ethics. (1) Adoption and Approval of Code of Ethics. (i) Every Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and each investment adviser of and principal underwriter for the Fund, must adopt a written code of ethics containing provisions reasonably necessary to prevent its Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. (ii) The board of directors of a Fund, including a majority of directors who are not interested persons, must approve the code of ethics of the Fund, the code of ethics of each investment adviser and principal underwriter of the Fund, and any material changes to these codes. The board must base its approval of a code and any material changes to the code on a determination that the code contains provisions reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. Before approving a code of a Fund, investment adviser or principal underwriter or any amendment to the code, the board of directors must receive a certification from the Fund, investment adviser or principal underwriter that it has adopted procedures reasonably necessary to prevent Access Persons from violating the investment adviser's or principal underwriter's code of ethics. The Fund's board must approve the code of an investment adviser or principal underwriter before initially retaining the services of the investment adviser or principal underwriter. The Fund's board must approve a material change to a code no later than six months after adoption of the material change. (iii) If a Fund is a unit investment trust, the Fund's principal underwriter or depositor must approve the Fund's code of ethics, as required by paragraph (c)(1)(ii) of this section. If the Fund has more than one principal underwriter or depositor, the principal underwriters and depositors may designate, in writing, which principal underwriter or depositor must conduct the approval required by paragraph (c)(1)(ii) of this section, if they obtain written consent from the designated principal underwriter or depositor. (2) Administration of Code of Ethics. (i) The Fund, investment adviser and principal underwriter must use reasonable diligence and institute procedures reasonably necessary to prevent violations of its code of ethics. (ii) No less frequently than annually, every Fund (other than a unit investment trust) and its investment advisers and principal underwriters must furnish to the Fund's board of directors, and the board of directors must consider, a written report that: (A) Describes any issues arising under the code of ethics or procedures since the last report to the board of directors, including, but not limited to, information about material violations of the code or procedures and B-15 Appendix B sanctions imposed in response to the material violations; and (B) Certifies that the Fund, investment adviser or principal underwriter, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the code. (3) Exception for Principal Underwriters. The requirements of paragraphs (c)(1) and (c)(2) of this section do not apply to any principal underwriter unless: (i) The principal underwriter is an affiliated person of the Fund or of the Fund's investment adviser; or (ii) An officer, director or general partner of the principal underwriter serves as an officer, director or general partner of the Fund or of the Fund's investment adviser. (d) Reporting Requirements of Access Persons. (1) Reports Required. Unless excepted by paragraph (d)(2) of this section, every Access Person of a Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and every Access Person of an investment adviser of or principal underwriter for the Fund, must report to that Fund, investment adviser or principal underwriter: (i) Initial Holdings Reports. No later than 10 days after the person becomes an Access Person, the following information: (A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership when the person became an Access Person; (B) The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and (C) The date that the report is submitted by the Access Person. (ii) Quarterly Transaction Reports. No later than 10 days after the end of a calendar quarter, the following information: (A) With respect to any transaction during the quarter in a Covered Security in which the Access Person had any direct or indirect beneficial ownership: (1) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved; (2) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (3) The price of the Covered Security at which the transaction was effected; (4) The name of the broker, dealer or bank with or through which B-16 Appendix B the transaction was effected; and (5) The date that the report is submitted by the Access Person. (B) With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: (1) The name of the broker, dealer or bank with whom the Access Person established the account; (2) The date the account was established; and (3) The date that the report is submitted by the Access Person. (iii) Annual Holdings Reports. Annually, the following information (which information must be current as of a date no more than 30 days before the report is submitted): (A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership; (B) The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and (C) The date that the report is submitted by the Access Person. (2) Exceptions from Reporting Requirements. (i) A person need not make a report under paragraph (d)(1) of this section with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control. (ii) A director of a Fund who is not an "interested person" of the Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who would be required to make a report solely by reason of being a Fund director, need not make: (A) An initial holdings report under paragraph (d)(1)(i) of this section and an annual holdings report under paragraph (d)(1)(iii) of this section; and (B) A quarterly transaction report under paragraph (d)(1)(ii) of this section, unless the director knew or, in the ordinary course of fulfilling his or her official duties as a Fund director, should have known that during the 15-day period immediately before or after the director's transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund or its investment adviser considered purchasing or selling the Covered Security. (iii) An Access Person to a Fund's principal underwriter need not make a report to the principal underwriter under paragraph (d)(1) of this section if: (A) The principal underwriter is not an affiliated person of the Fund (unless B-17 Appendix B the Fund is a unit investment trust) or any investment adviser of the Fund; and (B) The principal underwriter has no officer, director or general partner who serves as an officer, director or general partner of the Fund or of any investment adviser of the Fund. (iv) An Access Person to an investment adviser need not make a quarterly transaction report to the investment adviser under paragraph (d)(1)(ii) of this section if all the information in the report would duplicate information required to be recorded under (S)(S) 275.204-2(a)(12) or 275.204-2(a)(13) of this chapter. (v) An Access Person need not make a quarterly transaction report under paragraph (d)(1)(ii) of this section if the report would duplicate information contained in broker trade confirmations or account statements received by the Fund, investment adviser or principal underwriter with respect to the Access Person in the time period required by paragraph (d)(1)(ii), if all of the information required by that paragraph is contained in the broker trade confirmations or account statements, or in the records of the Fund, investment adviser or principal underwriter. (3) Review of Reports. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must institute procedures by which appropriate management or compliance personnel review these reports. (4) Notification of Reporting Obligation. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must identify all Access Persons who are required to make these reports and must inform those Access Persons of their reporting obligation. (5) Beneficial Ownership. For purposes of this section, beneficial ownership is interpreted in the same manner as it would be under (S) 240.16a-1(a)(2) of this chapter in determining whether a person is the beneficial owner of a security for purposes of section 16 of the Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and regulations thereunder. Any report required by paragraph (d) of this section may contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in the Covered Security to which the report relates. (e) Pre-approval of Investments in IPOs and Limited Offerings. Investment Personnel of a Fund or its investment adviser must obtain approval from the Fund or the Fund's investment adviser before directly or indirectly acquiring beneficial ownership in any securities in an Initial Public Offering or in a Limited Offering. (f) Recordkeeping Requirements. (1) Each Fund, investment adviser and principal underwriter that is required to adopt a code of ethics or to which reports are required to be made by Access Persons must, at its principal place of business, maintain records in the manner and to the extent set out in this paragraph (f), and must make these records available to the Commission or any representative of the Commission at any time and from time to time for reasonable periodic, special or other examination: (A) A copy of each code of ethics for the organization that is in effect, or at any time within the past five years was in effect, must be maintained in an easily B-18 Appendix B accessible place; (B) A record of any violation of the code of ethics, and of any action taken as a result of the violation, must be maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs; (C) A copy of each report made by an Access Person as required by this section, including any information provided in lieu of the reports under paragraph (d)(2)(v) of this section, must be maintained for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place; (D) A record of all persons, currently or within the past five years, who are or were required to make reports under paragraph (d) of this section, or who are or were responsible for reviewing these reports, must be maintained in an easily accessible place; and (E) A copy of each report required by paragraph (c)(2)(ii) of this section must be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place. (2) A Fund or investment adviser must maintain a record of any decision, and the reasons supporting the decision, to approve the acquisition by investment personnel of securities under paragraph (e), for at least five years after the end of the fiscal year in which the approval is granted. B-19 Attachment A ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS Code of Ethics. Liberty Wanger Asset Management, L.P. ("Liberty WAM"), Liberty Acorn Trust ("Liberty Acorn") and Wanger Advisors Trust ("WAT") have adopted a written Code of Ethics (the "Code") to avoid potential conflicts of interest by Liberty WAM personnel. A copy of the Code is attached to this letter. As a condition of your continued employment with Liberty WAM and the retention of your position, if any, as an officer of Liberty Acorn or WAT, you are required to read, understand and abide by the Code. Policy and Procedures Concerning Material Non-Public Information. Liberty WAM also has adopted a written policy concerning the use and handling of material non-public information (the "Policy"), a copy of which is also attached. Acknowledgment of compliance with the Policy is an additional condition of continued employment with Liberty WAM. Compliance Program. The Code and Policy require that all personnel furnish to Liberty WAM's compliance officer the names and addresses of any firm with which you have any investment account. You are also required to furnish to Liberty WAM's compliance officer copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales of securities in any such account, or which are effected by you or for your benefit, or the benefit of any member of your household. Additionally, you are required to furnish a report of your personal securities holdings within 10 days of commencement of your employment with Liberty WAM and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts. Liberty WAM's compliance program also requires that you report any contact with any securities issuer, government or its personnel, or others, that, in the usual course of business, might involve material non-public financial information. Only investment personnel are permitted to make such contacts. The Policy requires that you bring to the attention of the compliance officer any information you receive from any source which might be material non- public information. Any questions concerning the Code or the Policy should be directed to Liberty WAM's Compliance Officer. - -------------------------------------------------------------------------------- I affirm that I have read and understand the Code of Ethics ("Code") and the Policy Concerning Material Non-Public Information ("Policy"). I agree to the terms and conditions set forth in the Code and the Policy. ________________________________ ________________ Signature Date Attachment B ANNUAL AFFIRMATION OF COMPLIANCE I affirm that: 1. I have again read and, during the past year to the best of my knowledge, have complied with the Code of Ethics ("Code") and the Policy Concerning Material Non-Public Information ("Policy"). 2. I have provided to the firm's compliance officer the names and addresses of each investment account that I have with any firm, including, but not limited to, broker-dealers, banks and others. (List of known accounts attached.) 3. I have provided to the compliance officer of the firm copies of account statements showing each and every transaction in any security in which I have a beneficial interest, as defined in the Code during the most recently-ended calendar year or During the most recent calendar year there were no transactions in any security in which I had a beneficial interest required to be reported pursuant to the Code. 4. I have provided to the compliance officer a report of my personal securities holdings as of the end of the most recent calendar year, including the title, number of shares and principal amount of each security in which I have any direct or indirect beneficial ownership. _____________________________ ____________________ Signature Date EX-99.P.2 15 dex99p2.txt CODE OF ETHICS FOR NON-INTERESTED BOARD MEMBERS LIBERTY ACORN TRUST Code of Ethics for Non-Interested Board Members (adopted effective June 15, 1996; amended effective May 25, 1999 and September 29, 2000) The Investment Company Act and rules require that Liberty Acorn Trust ("Liberty 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 Liberty Acorn might take advantage of that knowledge for their own benefit. For that purpose, Liberty Acorn has adopted this Code of Ethics (the "Code") applicable to those members of Liberty Acorn's board of trustees who are not affiliated with Liberty Acorn or Liberty Wanger Asset Management, L.P. ("Liberty WAM"), Liberty 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 Liberty WAM's designated compliance officer or chief operating 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 security in which the person subject to this Code has a beneficial interest. 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- interested 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 the Fund's outside board members -- those members of the board of Liberty Acorn who are not affiliated with Liberty WAM, are not officers or 5% shareholders of Liberty Acorn, and are not otherwise "interested persons" of Liberty WAM. The outside board members subject to the Code are listed on Schedule A hereto. III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS A. No Transactions with the Funds. No outside board member 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 outside board member shall purchase or sell any security in which such person 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 2 A. Reporting Personal Securities Transactions. 1. An outside board member 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 outside board member, at the time of the transaction, knew, or in the ordinary course of fulfilling his 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. B. Form of Reports. Reports of personal securities transactions 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. C. Monitoring of Transactions. WAM's compliance officer will review the reports of personal securities transactions of the Fund's outside board members. D. Certification of Compliance. Each outside board member 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 3 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; 2. shares of open-end investment companies (mutual funds), including but not limited to shares of any series of Liberty Acorn or WAT; 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; and F. Purchases or sales that receive the prior approval of the Fund's compliance officer or chief operating 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 an outside board member, 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: 4 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. * * * * * Adopted effective 5/28/96 Amended effective 5/25/99 Amended effective 9/29/00 5 Schedule A Leo A. Guthart Irving B. Harris Jerome Kahn, Jr. David C. Kleinman James H. Lorie Roger S. Meier Allan B. Muchin Robert E. Nason Katherine Schipper 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: . 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); . 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); . 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; . 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; . securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; . securities held by a personal holding company controlled by you alone or jointly with others; . 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 . 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: . securities held by a limited partnership in which you do not have a controlling interest Appendix A and do not have or share investment control over the partnership's portfolio; and . 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. 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 Liberty WAM's designated compliance officer or chief operating officer. Attachment A LIBERTY ACORN TRUST Code of Ethics Affirmation I affirm that I have received a copy of the Liberty Acorn Trust Code of Ethics for Non-Interested Board Members (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 -----END PRIVACY-ENHANCED MESSAGE-----