-----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, EhQgDdLEgSzprUReNGUywx2zLn3b/r1GDX8SAK7KCzezESMXXw4gHk58yCu9vH5n nC+4fsrzl38hvpdqvDwtXA== 0000950135-02-004250.txt : 20020920 0000950135-02-004250.hdr.sgml : 20020920 20020920130655 ACCESSION NUMBER: 0000950135-02-004250 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20020920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY ACORN TRUST CENTRAL INDEX KEY: 0000002110 IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01829 FILM NUMBER: 02768562 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 FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ACORN INVESTMENT TRUST DATE OF NAME CHANGE: 19940204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY ACORN TRUST CENTRAL INDEX KEY: 0000002110 IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-34223 FILM NUMBER: 02768563 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 FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ACORN INVESTMENT TRUST DATE OF NAME CHANGE: 19940204 485APOS 1 b44206mse485apos.txt LIBERTY ACORN TRUST As filed with the Securities and Exchange Commission on September 20, 2002 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. 73 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 48 ------------------------------ LIBERTY ACORN 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: [ ] immediately upon filing pursuant to rule 485(b) [ ] on ____________, 2002 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) [X] on September 25, 2002 pursuant to rule 485(a)(3). - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 2002 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. - -------------------------------------------------------------------------------- COLUMBIA THERMOSTAT FUND PROSPECTUS, FEBRUARY 1, 2003 - -------------------------------------------------------------------------------- CLASS A, B AND D SHARES Advised by Liberty Wanger Asset Management, L.P. - ----------------------------------------- TABLE OF CONTENTS THE FUND 2 - ----------------------------------------- Investment Goal.........................2 Principal Investment Strategies.........2 Principal Investment Risks.............10 Your Expenses..........................14 YOUR ACCOUNT 16 - ----------------------------------------- How to Buy Shares......................16 Sales Charges..........................17 How to Exchange Shares.................21 How to Sell Shares.....................21 Fund Policy on Trading of Fund Shares..23 Distribution and Service Fees..........23 Other Information About Your Account...23 MANAGING THE FUND 27 - ----------------------------------------- Investment Advisor.....................27 Portfolio Managers.....................27 OTHER INVESTMENT STRATEGIES AND RISKS 29 - ----------------------------------------- Derivative Strategies..................29 Asset-Backed Securities................29 Mortgage-Backed Securities.............29 Temporary Defensive Strategies.........30 APPENDIX A ............................31 - ----------------------------------------- Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee - --------------------------- --- 1 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Thermostat Fund seeks to provide long-term total return. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Thermostat Fund ("Thermostat" or the "Fund") pursues its investment goal by investing in other mutual funds. As a "fund of funds," under normal circumstances, Thermostat allocates at least 95% of its net assets ("Stock/Bond Assets") among a selected group of stock and bond mutual funds ("Portfolio Funds") according to the current level of the Standard & Poor's 500 Stock Index ("S&P 500") in relation to predetermined ranges set by the Fund's investment adviser. When the S&P 500 goes up, the Fund sells a portion of its stock funds and invests more in the bond funds; and when the S&P 500 goes down, the Fund increases its investment in the stock funds. Under normal circumstances, Thermostat may invest up to 5% of its net assets plus any cash received that day in cash, high quality short-term paper and government securities. Asset allocation funds generally move assets from stocks to bonds when the market goes up, and from bonds to stocks when the market goes down. Most asset allocation funds are run by sophisticated investment professionals who make subjective decisions based on economic and financial data and complex graphs of market behavior. By contrast, the day-to-day investment decisions for Thermostat will be made according to a single predetermined rule. The temperature in your house is run by a single rule; your thermostat turns on the furnace if your house is too cold or turns on the air conditioner if your house is too warm. This Fund works the same way, so it is named Columbia Thermostat Fund. Because Thermostat invests according to a pre-set program, there is no need for subjective day-to-day management. Although a successful market timer might do better than Thermostat, Thermostat is designed for those who doubt the wisdom of trying to "time" the market and are unsure of the long-term trend of the stock market. Thermostat takes psychology out of investing; it avoids the temptation to buy more stocks because the stock market is currently going up or to sell stocks because the market is declining. Thermostat operates continuously and substantially automatically, subject to periodic review of the pre-set program by the Fund's adviser and its board of trustees. As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the structure and allocation ranges of the stock-bond allocation table and to make any changes considered appropriate. The Portfolio Funds are chosen by Thermostat's adviser to provide participation in the major sectors of the domestic stock and bond markets. If you believe that the stock market will tend to go up most of the time, then you should probably own a fully-invested stock fund and use a buy-and-hold strategy. Buy-and-hold was an excellent strategy in the 1982-1999 bull market. However, there have been long periods in the past when buy-and-hold was not the best strategy, such as 1930-1954 and 1969-1981, when the market fluctuated but did not make significant new highs. Thermostat may be a good investment choice for you if, for example, you believe that a remarkable bull market ended early in 2000 and that the market may not reach significant new highs for many years. Thermostat invests the Stock/Bond Assets among the Portfolio Funds according to an asset allocation table. The current allocation table is set forth below: --- 2 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- STOCK-BOND ALLOCATION TABLE HOW THERMOSTAT WILL INVEST THE STOCK/BOND ASSETS ------------------------------ LEVEL OF THE STOCK BOND S&P 500 PERCENTAGE PERCENTAGE ------------ ---------- ---------- over 1600 0% 100% 1551-1600 5 95 1501-1550 10 90 1451-1500 15 85 1401-1450 20 80 1351-1400 25 75 1301-1350 30 70 1251-1300 35 65 1201-1250 40 60 1151-1200 45 55 1101-1150 50 50 1051-1100 55 45 1001-1050 60 40 951-1000 65 35 901-950 70 30 851-900 75 25 801-850 80 20 751-800 85 15 701-750 90 10 651-700 95 5 under 650 100 0 When the S&P 500 moves into a new band on the table, the Fund will promptly rebalance the stock-bond mix to reflect the new S&P price level by redeeming shares of some Portfolio Funds and purchasing shares of other Portfolio Funds. The only exception will be a "31-day Rule"; in order to reduce transaction frequency and taxable events, after the Fund has increased its percentage allocation to either stock funds or bond funds, it will not decrease that allocation for at least 31 days. Following a change in the Fund's stock-bond mix, if the S&P 500 remains within the same band for a while, normal market fluctuations will change the values of the Fund's holdings of stock Portfolio Funds and bond Portfolio Funds. We will invest cash flows from sales (or redemptions) of Fund shares to bring the stock-bond mix back toward the allocation percentages for that S&P 500 band. For example, if the S&P is in the 901-950 band, and the value of the holdings of the stock Portfolio Funds has dropped to 68% of the value of the holdings of all Portfolio Funds, new cash would be invested in the stock Portfolio Funds (or cash for redemptions would come from the bond Portfolio Funds). As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the structure and allocation ranges of the stock-bond allocation table and to make any changes considered appropriate. --- 3 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- As an illustrative example, suppose the following market events occurred:
DATE LEVEL OF THE S&P 500 HOW THERMOSTAT WILL INVEST ---- -------------------- -------------------------- THE STOCK/BOND ASSETS --------------------- Nov. 1 We begin when the market is 1140 50% stocks, 50% bonds Dec. 1 The S&P 500 goes to 1151 rebalance 45% stocks, 55% bonds Dec. 6 The S&P 500 drops back to 1145 no reversal for 31 days Jan. 2 The S&P 500 is at 1142 rebalance 50% stocks, 50% bonds Jan. 20 The S&P 500 drops to 1099 rebalance 55% stocks, 45% bonds THE MARKET HAS MADE A CONTINUATION MOVE BY GOING THROUGH A SECOND ACTION LEVEL, NOT A REVERSAL MOVE, SO THE 31-DAY RULE DOES NOT APPLY IN THIS CASE. Jan. 30 The S&P 500 goes up to 1105 no reversal for 31 days Feb. 20 The S&P 500 is at 1110 rebalance 50% stocks, 50% bonds
The following table shows the five stock Portfolio Funds and three bond Portfolio Funds that Thermostat currently uses in its fund-of-funds structure and the current allocation percentage for each Portfolio Fund within the stock or bond category. The allocation percentage within each category is achieved by rebalancing the investments within the category whenever the S&P 500 moves into a new band on the allocation table, subject to the 31-day Rule described above. Thermostat does not liquidate its investment in one Portfolio Fund in order to invest in another Portfolio Fund except in connection with a rebalancing due to a move of the S&P 500 into a new band (or due to a change by the adviser's supervisory committee in the stock-bond allocation table, in the Portfolio Funds or in the relative allocation among Portfolio Funds). Until a subsequent rebalancing, Thermostat's investments in, and redemptions from, the stock Portfolio Funds or the bond Portfolio Funds are allocated among such Portfolio Funds in a manner that will reduce any deviation of the relative values of Thermostat's holdings of such funds from the allocation percentages shown below. ALLOCATION OF STOCK/BOND ASSETS WITHIN ASSET CLASSES STOCK FUNDS TYPE OF FUND ALLOCATION ----------- ------------ ---------- Liberty Acorn Fund Small cap stock 20% Liberty Acorn Twenty Mid cap stock 15 Liberty Growth Stock Fund Large cap growth 25 Liberty Growth & Income Fund Growth and income 25 Liberty Select Value Fund Mid cap stock 15 ---- Total 100% --- 4 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- BOND FUNDS TYPE OF FUND ALLOCATION ---------- ------------ ---------- Liberty Federal U.S. government 30% Securities Fund securities Liberty Intermediate Intermediate-term bonds 50 Bond Fund Columbia High-Yield Fund High-yield bonds 20 ---- Total 100% As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the Portfolio Funds and the relative allocation percentages among the stock funds and among the bond funds and to make any changes considered appropriate. Thermostat is advised by Liberty Wanger Asset Management, L.P. ("Liberty WAM" or the "Adviser"). Each of the Portfolio Funds is managed by Liberty WAM or an affiliate of Liberty WAM. The Fund will not pay any sales load on its purchases of shares of the Portfolio Funds. Liberty WAM has a supervisory committee that meets on an annual basis, or on an "emergency" basis if necessary, to review the structure, allocation percentages and Portfolio Funds of Thermostat and to make any changes considered appropriate. The committee typically addresses the following questions: Should the stock-bond allocation table be revised? (perhaps because the stock market has made a long-term move outside of the 650-1600 S&P 500 bands) Should there be a change in the Portfolio Funds in which Thermostat invests, or should there be a change in the percentage allocations among the stock funds or the bond funds? (perhaps because of a change of portfolio managers, change of investment style or reorganization of a Portfolio Fund) Any changes by the supervisory committee are expected to be infrequent. The S&P 500 is a broad market-weighted average of U.S. blue-chip company stock performance. The investment objectives and strategies of the current Portfolio Funds are described below: LIBERTY ACORN FUND, CLASS Z ("ACORN FUND") Acorn Fund seeks to provide long-term growth of capital. 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 --- 5 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Acorn Fund typically looks for companies with: - - 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. 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." LIBERTY ACORN TWENTY, CLASS Z ("ACORN TWENTY") Acorn Twenty seeks long-term growth of capital. 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 under $15 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, which are not as well known by financial analysts, may offer higher return potential than the stocks of companies with capitalizations above $15 billion. 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 Acorn Twenty 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." --- 6 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- LIBERTY GROWTH STOCK FUND, CLASS Z ("GROWTH STOCK FUND") Growth Stock Fund seeks long-term growth. Growth Stock Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks, primarily of companies with large market capitalizations. Growth Stock Fund may invest in any market sector but emphasizes the technology, financial services, health care, and global consumer franchise sectors. Growth Stock Fund may invest up to 25% of its assets in foreign stocks. To select investments for the Growth Stock Fund, the Fund's investment advisor considers companies that it believes will generate earnings growth over the long term regardless of the economic environment. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." LIBERTY GROWTH & INCOME FUND, CLASS Z ("GROWTH & INCOME FUND") Growth & Income Fund seeks long-term growth and income. Under normal market conditions, Growth & Income Fund invests at least 65% of its total assets in common stock of U.S. companies with equity market capitalizations at the time of purchase in excess of $3 billion. Up to 35% of the Fund's total assets may be invested in common stock of U.S. companies with equity market capitalizations at the time of purchase between $1 billion and $3 billion. Also, up to 10% of the Fund's total assets may be invested in a combination of (i) convertible bonds, (ii) corporate bonds that are rated investment grade and (iii) U.S. Government securities. When purchasing securities for the Fund, the Fund's adviser generally chooses securities of companies it believes are undervalued. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." LIBERTY SELECT VALUE FUND, CLASS Z ("SELECT FUND") Select Fund seeks long-term growth. The Fund invests, under normal market conditions, primarily in middle capitalization stocks. Middle capitalization stocks are stocks with market capitalizations between $1 billion and the largest stock in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index) ($10.4 billion as of December 31, 2001). In addition, any stock that is a member of the S&P MidCap 400 Index is considered a middle capitalization stock. The Fund may also invest in stocks with larger or smaller capitalizations. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." --- 7 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- LIBERTY FEDERAL SECURITIES FUND, CLASS Z ("FEDERAL SECURITIES FUND") Federal Securities Fund seeks as high a level of current income and total return as is consistent with prudent risk. Under normal market conditions, Federal Securities Fund invests at least 80% of its total assets in U.S. government securities, including U.S. treasuries and securities of various U.S. government agencies. Agency securities include mortgage-backed securities, which represent interests in pools of mortgages. The Fund may also invest up to 20% of its assets in corporate bonds or mortgage- or asset-backed securities that are issued by a private entity. These securities must be rated investment grade by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch, Inc. ("Fitch"), an international rating agency. The Fund has wide flexibility to vary its allocation among different types of U.S. government securities and the securities of non-governmental issuers based on the judgment of its adviser of which types of securities will outperform the others. In selecting investments for the Fund, the adviser considers a security's expected income together with its potential to rise or fall in price. Federal Securities Fund generally maintains a duration of greater than four and a half years and less than 10 years. As a result, the Fund's portfolio has market risks and an expected average life comparable to intermediate- to long-term bonds. The Fund's adviser may vary the Fund's duration depending on its forecast of interest rates and market conditions (for example, when interest rates are expected to increase, the adviser may shorten the duration, and vice versa). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." LIBERTY INTERMEDIATE BOND FUND, CLASS Z ("INTERMEDIATE BOND FUND") Intermediate Bond Fund seeks its total return by pursuing current income and opportunities for capital appreciation. Under normal circumstances, the Intermediate Bond Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in bonds, including: - - Debt securities issued by the U.S. government; these include U.S. treasury securities and agency securities. Agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages, - - Debt securities of corporations, and - - Mortgage-backed and asset-backed securities issued by private (non-governmental) entities. Intermediate Bond Fund will invest at least 60% of its net assets in higher-quality debt securities that are at the time of purchase: - - Rated at least A by S&P; - - Rated at least A by Moody's; --- 8 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- - - Given a comparable rating by another nationally recognized rating agency; or - - Unrated securities that the Fund's adviser believes to be of comparable quality. Intermediate Bond Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase: - - Rated below BBB by S&P; - - Rated below Baa by Moody's; - - Given a comparable rating by another nationally recognized rating agency; or - - Unrated securities that the Fund's adviser believes to be of comparable quality. Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years. The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value. In addition, to a limited extent, the Fund may seek capital appreciation by using hedging techniques such as futures and options. The manager of the Fund has wide flexibility to vary the allocation among different types of debt securities based on his judgment of which types of securities will outperform the others. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." COLUMBIA HIGH-YIELD FUND ("HIGH-YIELD FUND") High-Yield Fund seeks a high level of income, with capital appreciation as a secondary goal. High-Yield Fund pursues its objective by investing in non-investment-grade corporate debt securities, commonly referred to as "junk" or "high-yield" bonds. Normally, the Fund will invest at least 80% of its assets in bonds rated Ba or B by Moody's or BB or B by S&P. No more than 10% of the Fund's assets will be invested in bonds rated Caa by Moody's or CCC by S&P, and no Fund assets will be invested in bonds below these grades. By focusing on higher quality junk bonds, the Fund seeks access to higher yielding bonds without assuming all the risk associated with the broader junk bond market. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." --- 9 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. The value of an investment in the Fund is based primarily on the performance of the Portfolio Funds and the allocation of the Fund's assets among them. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk. Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. The Fund does not have the ability to affect how the portfolio managers of the Portfolio Funds manage those funds. Market risk. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds. Equity risk. Since the Fund may invest in equity Portfolio Funds, it is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. Smaller companies. Smaller companies, including small and medium-cap 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 may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, small-cap companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. Foreign securities. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that a Portfolio Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. Other risks include: possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of --- 10 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- currency exchange controls. Emerging markets. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. 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. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. Interest rate risk. Since the Fund may invest in bond Portfolio Funds, it is subject to interest rate risk. This is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities. Credit risk. Credit risk means that the issuing company may not be able to pay interest and principal when due. The lower-rated bonds held by the bond Portfolio Funds are subject to greater credit risk than higher-rated, lower yielding bonds. High yield bonds may be issued to fund corporate restructurings, such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar events, and they are often issued by smaller, less creditworthy companies or by companies with substantial debt. The prices of high yield bonds are generally more sensitive than higher-rated bonds to the financial condition of the issuer and adverse changes in the economy. Structure risk and prepayment risk. Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in mortgage-backed securities. Prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. Issuer risk. Because a Portfolio Fund may invest in debt securities issued or supported by private entities, including corporate bonds and mortgage-backed and asset backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in --- 11 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. Lower-rated debt securities. Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher quality debt securities. Lower-rated debt securities have the added risk that the issuer of the security may default and not make payment of interest or principal. Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics. Value stocks. Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of its stock may fall, or may not approach the value the advisor has placed on it. Growth stocks. Because some of the Portfolio Funds invest in growth stocks, the Fund is subject to the risk that growth stocks may be out of favor with investors for an extended period of time. Market trends. The Fund is also subject to the risk that the investment adviser's decisions regarding asset classes and Portfolio Funds will not anticipate market trends successfully. For example, weighting Portfolio Funds that invest in common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in Portfolio Funds that invest in bonds during a period of stock market appreciation may result in lower total return. Of course, the risks associated with investing in the Fund will vary depending upon how the assets are allocated among Portfolio Funds. Management has no control over the portfolio managers or investment decisions of the Portfolio Funds. However, decisions made by the Portfolio Funds' managers will have a significant effect on a Fund's performance. Affiliated fund risk. In managing Thermostat, the supervisory committee of Liberty WAM will have authority to change the Portfolio Funds in which Thermostat invests or to change the percentage allocations among the stock funds or the bond funds. Since different Portfolio Funds pay different rates of management fees to Liberty WAM or its affiliates, Liberty WAM may have a conflict of interest selecting the Portfolio Funds or in determining the relative percentage allocations among Portfolio Funds. Portfolio turnover. The Fund may buy and sell shares of the Portfolio Funds frequently. This may result in more realized income and greater income taxes, and could increase the transaction costs of the underlying funds. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. --- 12 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- Because the Fund is a new Fund and has not completed a full calendar year, information related to the Fund's performance, including a bar chart showing annual returns, has not been included in this prospectus. Average annual total returns for each Portfolio Fund as of December 31, 2001, are included in Appendix A. --- 13 - -------------------------------------------------------------------------------- THE FUND - -------------------------------------------------------------------------------- YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. - -------------------------------------------------------------------------------- SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- CLASS A CLASS B CLASS D Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None 1.00 - -------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - -------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(3) None(3) None(3) (1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank. - -------------------------------------------------------------------------------- DIRECT ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- CLASS A CLASS B CLASS D Management fees (4)(%) 0.10 0.10 0.10 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25* 1.00 1.00 - -------------------------------------------------------------------------------- Other expenses (5)(%) 0.41 0.41 0.41 - -------------------------------------------------------------------------------- Total direct annual fund operating expenses (6)(%) 0.76 1.51 1.51 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMBINED ANNUAL FUND OPERATING EXPENSES(7) (DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- CLASS A CLASS B CLASS D Management fees (%) 0.72 0.72 0.72 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25* 1.00 1.00 - -------------------------------------------------------------------------------- Other expenses (%) 0.75 0.75 0.75 - -------------------------------------------------------------------------------- Total direct annual fund operating expenses (%) 1.72 2.47 2.47 - -------------------------------------------------------------------------------- * The Fund may pay distribution and service fees of up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.10% for distribution services and up to 0.25% for shareholder liason services) but will limit such fees to an aggregate fee of not more than 0.25% during the current fiscal year. (4) In addition to the management fee, the Fund pays the Adviser an administrative fee of 0.05%, which is included in "Other expenses." (5) "Other expenses" are based on estimated amounts for the first year of operations. (6) The Fund's Adviser has agreed to bear a portion of the Fund's expenses so that "Total direct annual fund operation expenses" (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) do not exceed 0.60% annually. The Adviser will have the right to recoup expense reimbursement payments made to the Fund through December 31, 2005. This will be accomplished by the payment of an expense reimbursement fee by the Fund to the Adviser computed and paid annually, with a limitation that immediately after such payment the Fund's Total direct annual fund operating expenses (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) will not exceed 0.60% annually. This arrangement may be modified or terminated at an earlier date by the Adviser. (7) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. The ratios shown above are based on an asset allocation among Portfolio Funds that would have been made as of September 10, 2002 if the Fund had commenced operations on that date, based on the respective expense ratios of the Portfolio Funds for their respective last fiscal years, as adjusted to reflect any fee waiver for any Portfolio Fund in effect as of the end of its last fiscal year. Based on this allocation, the fund's estimated indirect annual expenses would have been 0.96% (representing management fees of 0.62% and other expenses of 0.34%). Such expense ratios ranged from 0.82% to 1.35%. The indirect expense ratio of the Fund may be higher or lower depending on the portion of the Fund's assets allocated to each Portfolio Fund from time to time. The assumed allocation of the Fund's net assets among the underlying Liberty, Stein Roe and Columbia Funds as of September 10, 2002 based on the S&P 500 Index level on that date would have been as follows: Liberty Acorn Fund, 14%; Liberty Acorn Twenty Fund, 11%; Liberty Growth Stock Fund, 17%; Liberty Growth & Income Fund, 17%; Liberty Select Value Fund, 11%; Liberty Federal Securities Fund, 9%; Liberty Intermediate Bond Fund, 15%; and Columbia High Yield Fund, 6%. UNDERSTANDING EXPENSES SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor, Inc., the Fund's distributor. ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees and other 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 --- 14 - ------------------------------------------------------------------------------- EXAMPLE EXPENSES(8) (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - -------------------------------------------------------------------------------- CLASS 1 YEAR 3 YEARS Class A: $740 $1,086 - ------------------------------------------------------------- Class B: did not sell your shares $250 $ 770 sold all your shares at the end of the period $750 $1,070 - ------------------------------------------------------------- Class D: did not sell your shares $250 $ 770 sold all your shares at the end of the period $350 $ 770 (8) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. --- 15 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that 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. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts send a completed application and check (new account) made payable to the Fund to the transfer agent, Liberty Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8082. - -------------------------------------------------------------------------------- By check For existing accounts fill out and return the additional (existing account) investment stub included in your account statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8082. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares of the Fund for your account 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 of the Fund by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares of the Fund by electronically transfer (existing transferring money from your bank account to your Fund account) account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic You may make monthly or quarterly investments investment plan automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar You may purchase shares of the Fund for your account by cost averaging exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. You must have a current balance of at least $5,000 in the fund the money is coming from. The designated amount will be exchanged on the third Tuesday of each month. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. You may terminate your program or change the amount of the exchange (subject to the $100 minimum) by calling 1-800-422-3737. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by diversification another fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. - -------------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment................ $1,000 Subsequent Investments............ $ 50 Automatic Investment Plan*........ $ 50 Retirement Plans*................. $ 25 * The initial investment minimum of $1,000 is waived on these plans. The Fund reserves the right to change these investment minimums. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. --- 16 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- SALES CHARGES - -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, the sales charges may be waived, as described below and in the Statement of Additional Information. CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. A portion of the sales charge is paid as a commission to your financial advisor firm on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below. - -------------------------------------------------------------------------------- CLASS A SALES CHARGES - -------------------------------------------------------------------------------- % OF OFFERING 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. CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- CLASS A, B and D. 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 D 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. --- 17 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- 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 in all classes maintained by you, your spouse or your minor children (as listed on your account application) reaches a sales charge 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 elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor firm an up-front commission on sales of Class B shares as described in the charts on the following page. UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and D 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. --- 18 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- PURCHASES OF LESS THAN $250,000: - -------------------------------------------------------------------------------- CLASS B SALES CHARGES - -------------------------------------------------------------------------------- % DEDUCTED WHEN HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD Through first year 5.00 - -------------------------------------------------------------------------------- Through second year 4.00 - -------------------------------------------------------------------------------- Through third year 3.00 - -------------------------------------------------------------------------------- Through fourth year 3.00 - -------------------------------------------------------------------------------- Through fifth year 2.00 - -------------------------------------------------------------------------------- Through sixth year 1.00 - -------------------------------------------------------------------------------- Longer than six years None Commission to financial advisors is 5.00%. Automatic conversion to Class A shares occurs eight years after purchase. You can pay a lower CDSC and reduce the holding period when making purchases of Class B shares through a financial advisor 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 in all classes maintained by you, your spouse or your minor children is at or above a discount level, your next purchase will be subject to 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 occurs four years after purchase. --- 19 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- PURCHASES OF $500,000 TO LESS THAN $1 MILLION: - -------------------------------------------------------------------------------- CLASS B SALES CHARGES - -------------------------------------------------------------------------------- % DEDUCTED WHEN HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 - -------------------------------------------------------------------------------- Commission to financial advisors is 1.75%. Automatic conversion to Class A shares occurs three years after purchase. If you exchange into a fund participating in the Class B share discount program or transfer your fund account from a financial advisor 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, together with the exchanged or transferred account, exceed the applicable discount level will be subject to the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a fund or financial advisor that does not, the exchanged or transferred shares will retain the pre-existing CDSC schedule and holding period but all additional purchases of Class B shares will be subject to the higher CDSC and longer holding period of the non-participating fund or financial advisor. CLASS D SHARES Your purchases of Class D shares are at Class D's net asset value. Class D shares have a front-end sales charge of 1.00%, and carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor firm an up-front commission of 1.00% on sales of Class D shares. - -------------------------------------------------------------------------------- CLASS D SALES CHARGES - -------------------------------------------------------------------------------- HOLDING PERIOD AFTER PURCHASE % DEDUCTED WHEN SHARES ARE SOLD Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 --- 20 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- 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 are exchanging. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. You may only exchange your Class D shares of the Fund once in any three-month period. For this purpose, an exchange into another fund and a prior or subsequent exchange out of another fund constitute an "exchange." Shareholders of Liberty Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Liberty Funds Distributor, Inc. (see the Statement of Additional Information for a description of these situations). Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may recognize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the Adviser determines that your exchange activity is likely to adversely impact its ability to manage the Fund. 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 NYSE is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and 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. --- 21 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES: - -------------------------------------------------------------------------------- METHOD INSTRUCTIONS - -------------------------------------------------------------------------------- Through your You may call your financial advisor to place your sell financial advisor order. To receive the current trading day's price, your financial advisor firm must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares of the Fund 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 of the Fund by telephone and request that a check be sent to your address of record by calling 1-800-422-3737, unless you have notified the Fund of an address change within the previous 30 days. The dollar limit for telephone sales is $100,000 in a 30-day period. You do not need to set up this feature in advance of your call. Certain restrictions apply to retirement accounts. For details, call 1-800-345-6611. - -------------------------------------------------------------------------------- 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 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By wire You may sell shares of the Fund and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic You may automatically sell a specified dollar amount or withdrawal plan percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic You may sell shares of the Fund and request that the funds transfer proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- --- 22 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading in its shares. 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. 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 D 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 D shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for Class B and Class D 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 for trading (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 which will be that day's closing net asset value per share of the respective Portfolio Funds. 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 --- 23 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- 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 or D 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 DESTRIBUTIONS - -------------------------------------------------------------------------------- Dividends Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains on sales of securities held for a 12-month period or less. DISTRIBUTION OPTIONS The Fund distributes dividends in June and December and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains, generally based on the number of shares you own at the time these distributions are declared. --- 24 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the Fund - -------------------------------------------------------------------------------- Reinvest all distributions in shares of another fund - -------------------------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains - -------------------------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - - 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, and all subsequent distributions, will be reinvested in additional shares of the Fund. TAX CONSEQUENCES Unless you are an entity exempt from income tax or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on 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. Income other than net capital gains received by the Fund from the Portfolio Funds (including dividends and distributions of short-term capital gains) will be distributed by the Fund (after deductions for expenses) and will be taxable to you as ordinary income. Because the Fund is an asset allocation fund and may realize taxable net short-term capital gains by selling shares of a Portfolio Fund in its portfolio with unrealized portfolio appreciation, investing in the Fund rather than directly in the Portfolio Fund may result in increased tax liability to you since the Fund must distribute its gains in accordance with the Internal Revenue Code of 1986. Distributions of net capital gains received by the Fund from its Portfolio Funds, plus net long-term capital gains realized by the Fund from the purchase and sale of Portfolio Fund shares or other securities held by the Fund for more than one year, will be distributed by the Fund and will be taxable to you as long-term capital gains (even if you have held Fund shares for one year or less). If a shareholder who has received a capital gains distribution suffers a loss on the sale of his or her shares not more than six months after purchase, the loss will be treated as a long-term capital loss to the extent of the capital gains distribution received. Long-term capital gains, including distributions of net capital gains, are currently subject to a maximum federal tax rate of 20% and a special rate of 18% for capital assets that have been held for more than five years and whose holding periods began after December 31, 2000. This rate is less than the maximum rate imposed on other types of taxable income. Capital gains also may be advantageous since, unlike ordinary income, they may be offset by capital losses. --- 25 - -------------------------------------------------------------------------------- YOUR ACCOUNT - -------------------------------------------------------------------------------- For purposes of determining the character of income received by the Fund when a Portfolio Fund distributes net capital gains to the Fund, the Fund will treat the distribution as long-term capital gain, even if the Fund has held shares of the Portfolio Fund for one year or less. Any loss incurred by the Fund on the sale of that Portfolio Fund's shares held for six months or less, however, will be treated as a long-term capital loss to the extent of the net capital gain distribution. High portfolio turnover may cause the Fund to realize short term capital gains which, if realized and distributed by the Fund, may be taxable to shareholders as ordinary income. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws. In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. --- 26 - -------------------------------------------------------------------------------- MANAGING THE FUND - -------------------------------------------------------------------------------- INVESTMENT ADVISOR - -------------------------------------------------------------------------------- Liberty Wanger Asset Management, L.P. ("Liberty WAM"), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is Thermostat's investment advisor and is responsible for the Fund's management, subject to oversight by the Fund's board of trustees. 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, 2001, Liberty WAM managed over $8.7 billion in assets. The Portfolio Funds are managed by Liberty WAM and its affiliates, Colonial Management Associates, Inc. ("Colonial"), Columbia Management Company ("Columbia") and Stein Roe & Farnham Incorporated ("Stein Roe"). The mutual fund and institutional investment advisory business of Liberty WAM, Colonial, Columbia and Stein Roe are part of a larger business unit known as Columbia Asset Management ("CAM") that includes several separate legal entities that are managed by a single management team. They also share personnel, facilities and systems that may be used in providing administrative or operational services to Thermostat. They and the other entities that make up CAM are indirect, wholly owned subsidiaries of FleetBoston Financial Corporation. Liberty WAM's advisory fee for managing the Fund will be 0.10% of the Fund's average daily net assets. Liberty WAM will also receive an administrative fee from the Fund at the annual rate of 0.05% of the Fund's average daily net assets. WAM was renamed Liberty Wanger Asset Management, L.P. on September 29, 2000. Liberty WAM is owned by Columbia Management Group, Inc., which is owned by Fleet National Bank, which is owned by FleetBoston Financial Corporation. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Liberty WAM uses a supervisory committee to review on an infrequent basis the structure and allocation ranges of Thermostat and to make any changes considered appropriate. The members of the committee are Ralph Wanger, Charles P. McQuaid and Harvey B. Hirschhorn. RALPH WANGER Ralph Wanger has been the president and chief investment officer of Liberty WAM and Wanger Asset Management, L.P. ("WAM") since 1992, 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 and president of WAM Acquisition GP, Inc. since September 29, 2000. He was a principal of WAM and president of Wanger Asset Management Ltd. from July 1992 until September 29, 2000. Mr. Wanger is the president of Wanger Advisors Trust and serves as a director of Wanger Investment Company plc. He is a Chartered Financial Analyst (CFA), and earned his BS and MS degrees in Industrial Management from the Massachusetts Institute of Technology. --- 27 - -------------------------------------------------------------------------------- MANAGING THE FUND - -------------------------------------------------------------------------------- CHARLES P. MCQUAID 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 since July 1992, and was a principal of WAM from July 1992 to September 29, 2000. Mr. McQuaid has been a member of Liberty Acorn Fund's management team since 1978, and has co-managed Liberty Acorn Fund since 1995. Mr. McQuaid is also a senior vice president of Wanger Advisors Trust. He is a CFA, and earned his BBA from the University of Massachusetts and his MBA from the University of Chicago. HARVEY B. HIRSCHHORN Harvey Hirschhorn, a vice president of Liberty WAM, joined Stein Roe in 1973. Mr. Hirschhorn is executive vice president and chief economist and investment strategist of Stein Roe. He holds an A.B. degree from Rutgers University and a M.B.A. degree from the University of Chicago, and is a CFA. --- 28 - -------------------------------------------------------------------------------- OTHER INVESTMENT STRATEGIES AND RISKS - -------------------------------------------------------------------------------- Thermostat's principal investment strategies and their associated risks are described above. This section provides more detail about the investment strategies of the Portfolio Funds, and describes other investments the Portfolio Funds may make and the risks associated with them. In seeking to achieve their investment goals, the Portfolio Funds may invest in various types of securities and engage in various investment techniques that are not their principal focus and therefore are not described in this prospectus. These types of securities and investment practices are identified and discussed in Thermostat's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as otherwise noted, approval by Thermostat's shareholders is not required to modify or change Thermostat's investment goal or any of its investment strategies. DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Portfolio Funds may enter into a number of hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of underlying security, index or currency. The Portfolio Funds may use these strategies to adjust their sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to a Portfolio Fund. ASSET-BACKED SECURITIES - -------------------------------------------------------------------------------- Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and therefore, cause a Portfolio Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. MORTGAGE-BACKED SECURITIES - -------------------------------------------------------------------------------- Mortgage-backed securities are securities that represent ownership interests in large, diversified pools of mortgage loans. Sponsors pool together mortgages of similar rates and terms and offer them as a security to investors. Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by --- 29 - -------------------------------------------------------------------------------- OTHER INVESTMENT STRATEGIES AND RISKS - -------------------------------------------------------------------------------- three agencies: Ginnie Mae, Fannie Mae, and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. 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. --- 30 - -------------------------------------------------------------------------------- APPENDIX A - -------------------------------------------------------------------------------- The following after tax returns of the Portfolio Funds are calculated using the historical highest individual federal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and may not be relevant to investors who hold Portfolio Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - -------------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Average annual total returns are a measure of a Portfolio Fund's average performance over the past one-year, five-year and ten-year periods. They include the effects of Portfolio Fund expenses. The Portfolio Fund's returns are compared to an index selected by the Portfolio Funds' advisor. All third party trademarks are the property of their owners. Unlike each Portfolio Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2001 - --------------------------------------------------------------------------------
Inception Date 1 Year 5 Years 10 Years Liberty Acorn Fund, Class Z(1)(%) 6/10/70 Return Before Taxes 6.14 15.60 16.61 Return After Taxes on Distributions 5.64 12.97 14.17 Return After Taxes on Distributions and Sale of Fund Shares 4.13 12.41 13.47 - ----------------------------------------------------------------------------------------- Russell 2000(R) Index(%) n/a 2.49 7.52 11.51 (1) The Fund's Class Z share total annual fund operating expenses at December 31, 2001 were 0.82% and Class Z net assets of the Fund were (in millions) $4,220. Inception Life of the Date 1 Year 3 Years Fund Liberty Acorn Twenty, Class Z(2)(%) 11/23/98 Return Before Taxes 8.00 15.97 17.95 Return After Taxes on Distributions 7.96 15.04 17.04 Return After Taxes on Distributions and Sale of Fund Shares 4.91 12.81 14.51 - ----------------------------------------------------------------------------------------- S&P Midcap 400 Index(%) n/a -0.60 10.24 13.66 (2) The Fund's Class Z share total annual fund operating expenses at December 31, 2001 (exclusive of any voluntary fee waiver) were 1.38% and Class Z net assets of the Fund were (in millions) $70.
---- 31 APPENDIX A
Inception Life of the Date(3) 1 Year 5 Years Fund - ----------------------------------------------------------------------------------------------- Liberty Growth & Income Fund, Class Z (4)(%) 2/7/01 Return Before Taxes -0.17 15.98 15.87 Return After Taxes on Distributions -2.59 13.15 13.33 Return After Taxes on Distributions and Sale of Fund Shares 0.69 12.63 12.69 - ----------------------------------------------------------------------------------------------- S&P 500 Index (%) -11.88 10.70 13.73(5)
(3) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would be higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 1, 1992, and Class Z shares were initially offered on February 7, 2001. (4) The Fund's Class Z share total annual fund operating expenses at June 30, 2002 (exclusive of any voluntary fee waiver) were 1.11% and Class Z net assets of the Fund were (in millions) $5. (5) Performance information is from June 30, 1992.
Inception Date 1 Year 5 Years 10 years - ----------------------------------------------------------------------------------------- Liberty Growth Stock Fund, Class Z (6)(%) 7/1/58 Return Before Taxes -23.94 8.77 10.34 Return After Taxes on Distributions -23.94 7.49 8.36 Return After Taxes on Distributions and Sale of Fund Shares -14.58 7.44 8.14 - ----------------------------------------------------------------------------------------- S&P 500 Index (%) N/A -11.88 10.70 12.93
(6) The Fund's Class Z share total annual fund operating expenses at September 30, 2001 (exclusive of any voluntary fee waiver) were 0.96% and Class Z net assets of the Fund were (in millions) $551. ---- 32 APPENDIX A
Inception Date(7) 1 Year 5 Years 10 Years - --------------------------------------------------------------------------------------------- Liberty Select Value Fund Class Z (8)(%) 2/8/01 Return Before Taxes 2.50 14.60 14.59 Return After Taxes on Distributions 2.33 12.42 11.74 Return After Taxes on Distributions and Sale of Fund Shares 1.57 11.54 11.13 - -------------------------------------------------------------------------------------------- S&P Midcap 400 Index (%) (0.62) 16.11 15.01
(7) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the Class Z shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 21, 1949 and Class Z shares were initially offered on February 8, 2001. (8) The Fund's Class Z share total annual fund operating expenses at October 31, 2001 were 0.99% and Class Z net assets of the Fund were (in millions) $417.
Inception Date(9) 1 Year 5 Years 10 Years Liberty Federal Securities Fund Class Z (10)(%) 1/11/99 Return Before Taxes 7.00 6.73 6.59 Return After Taxes on Distributions 4.56 4.06 3.80 Return After Taxes on Distribution and Sale of Fund Shares 4.23 4.04 3.88 - ---------------------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (%) 10.47 6.18 7.19
(9) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on March 30, 1984, and Class Z shares were initially offered on January 11, 1999. (10) The Fund's Class Z share total annual fund operating expenses at August 31, 2001 were 0.90% and Class Z net assets of the Fund were (in thousands) $13. ---- 33
Inception Date 1 Year 5 Years 10 Years - ---------------------------------------------------------------------------------------------- Liberty Intermediate Bond Fund Class Z (11)(%) 12/5/78 Return Before Taxes 9.18 7.33 7.14 Return After Taxes on Distributions 6.35 4.51 4.28 Return After Taxes on Distributions and Sale of Fund Shares 5.55 4.45 4.29 - ---------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (%) 8.44 7.43 7.23
(11) The Fund's Class Z share total annual fund operating expenses at June 30, 2002 were 0.79% and Class Z net assets of the Fund were (in millions) $730.
Inception Life of Date 1 Year 5 Years the Fund - ---------------------------------------------------------------------------------------------- Columbia High Yield Fund (12)(%) 10/1/93 Return Before Taxes 6.63 6.46 7.28 Return After Taxes on Distributions 3.49 2.98 3.78 Return After Taxes on Distributions and Sale of Fund Shares 4.00 3.44 4.06 - ---------------------------------------------------------------------------------------------- Salomon BB Index (%) 13.48 7.79 8.41 - ---------------------------------------------------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index (%) 6.20 3.95 6.24 - ---------------------------------------------------------------------------------------------- Merrill Lynch Intermediate BB Index (%) 9.99 6.29 7.20
(12) The Fund's total annual fund operating expenses at December 31, 2001 were 0.85% and net assets of the Fund were (in millions) $239. --- 34 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- --- 35 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- --- 36 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments will be published in the Fund's semiannual and annual reports to shareholders. The annual report will contain a discussion of the market conditions and investment strategies that significantly affected the Fund's performance 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: 811-01829 - - Columbia Thermostat Fund [LIBERTY FUNDS LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP (C) 2002 Liberty Funds Distributor, Inc. A Member of Columbia Management Group One Financial Center, Boston, MA 02111-2621 800.426.3750 www.libertyfunds.com 143-01/133L-0902 Number ____ SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 2002 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. - ------------------------------------------------------------------------------- COLUMBIA THERMOSTAT FUND PROSPECTUS, SEPTEMBER , 2002 - ------------------------------------------------------------------------------- CLASS Z SHARES Advised by Liberty Wanger Asset Management, L.P. Liberty Acorn Trust - ------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - ------------------------------------------------------------------------------- Investment Goal ...................................................... 2 Principal Investment Strategies ...................................... 2 Principal Investment Risks ........................................... 8 Your Expenses ........................................................ 11 YOUR ACCOUNT 13 - ------------------------------------------------------------------------------- How to Buy Shares .................................................... 13 Eligible Investors ................................................... 13 Sales Charges ........................................................ 14 How to Exchange Shares ............................................... 15 How to Sell Shares ................................................... 15 Fund Policy on Trading of Fund Shares ................................ 16 Other Information About Your Account ................................. 16 MANAGING THE FUND 20 - ------------------------------------------------------------------------------- Investment Advisor ................................................... 20 Portfolio Managers ................................................... 20 OTHER INVESTMENT STRATEGIES AND RISKS 21 - ------------------------------------------------------------------------------- Derivative Strategies ................................................ 21 Asset Backed Securities .............................................. 21 Mortgage Backed Securities ........................................... 21 Temporary Defensive Strategies ....................................... 22 APPENDIX A 23 - ------------------------------------------------------------------------------- Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------------ Not FDIC May Lose Value Insured ----------------- No Bank Guarantee ------------------------------ Page 1 - ------------------------------------------------------------------------------- THE FUND - ------------------------------------------------------------------------------- INVESTMENT GOAL - ------------------------------------------------------------------------------- Columbia Thermostat Fund seeks to provide long-term total return. PRINCIPAL INVESTMENT STRATEGIES - ------------------------------------------------------------------------------- Columbia Thermostat Fund ("Thermostat" or the "Fund") pursues its investment goal by investing in other mutual funds. As a "fund of funds," under normal circumstances, Thermostat allocates at least 95% of its net assets ("Stock/Bond Assets") among a selected group of stock and bond mutual funds ("Portfolio Funds") according to the current level of the Standard & Poor's 500 Stock Index ("S&P 500") in relation to predetermined ranges set by the Fund's investment adviser. When the S&P 500 goes up, the Fund sells a portion of its stock funds and invests more in the bond funds; and when the S&P 500 goes down, the Fund increases its investment in the stock funds. Under normal circumstances, Thermostat may invest up to 5% of its net assets plus any cash received that day in cash, high quality short-term paper and government securities. Asset allocation funds generally move assets from stocks to bonds when the market goes up, and from bonds to stocks when the market goes down. Most asset allocation funds are run by sophisticated investment professionals who make subjective decisions based on economic and financial data and complex graphs of market behavior. By contrast, the day-to-day investment decisions for Thermostat will be made according to a single predetermined rule. The temperature in your house is run by a single rule; your thermostat turns on the furnace if your house is too cold or turns on the air conditioner if your house is too warm. This Fund works the same way, so it is named Columbia Thermostat Fund. Because Thermostat invests according to a pre-set program, there is no need for subjective day-to-day management. Although a successful market timer might do better than Thermostat, Thermostat is designed for those who doubt the wisdom of trying to "time" the market and are unsure of the long-term trend of the stock market. Thermostat takes psychology out of investing; it avoids the temptation to buy more stocks because the stock market is currently going up or to sell stocks because the market is declining. Thermostat operates continuously and substantially automatically, subject to periodic review of the pre-set program by the Fund's adviser and its board of trustees. As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the structure and allocation ranges of the stock-bond allocation table and to make any changes considered appropriate. The Portfolio Funds are chosen by Thermostat's adviser to provide participation in the major sectors of the domestic stock and bond markets. If you believe that the stock market will tend to go up most of the time, then you should probably own a fully-invested stock fund and use a buy-and-hold strategy. Buy-and-hold was an excellent strategy in the 1982-1999 bull market. However, there have been long periods in the past when buy-and-hold was not the best strategy, such as 1930-1954 and 1969-1981, when the market fluctuated but did not make significant new highs. Thermostat may be a good investment choice for you, if, for example, you believe that a remarkable bull market ended early in 2000 and that the market may not reach significant new Page 2 highs for many years. Thermostat invests the Stock/Bond Assets among the Portfolio Funds according to an asset allocation table. The current allocation table is set forth below: - ------------------------------------------------------------------------------- STOCK-BOND ALLOCATION TABLE - ------------------------------------------------------------------------------- HOW THERMOSTAT WILL INVEST THE STOCK/BOND ASSETS LEVEL OF THE ------------------------------------------------------- S&P 500 STOCK PERCENTAGE BOND PERCENTAGE - -------------------------------------------------------------------------------- over 1600 0% 100% - -------------------------------------------------------------------------------- 1551-1600 5 95 - -------------------------------------------------------------------------------- 1501-1550 10 90 - -------------------------------------------------------------------------------- 1451-1500 15 85 - -------------------------------------------------------------------------------- 1401-1450 20 80 - -------------------------------------------------------------------------------- 1351-1400 25 75 - -------------------------------------------------------------------------------- 1301-1350 30 70 - -------------------------------------------------------------------------------- 1251-1300 35 65 - -------------------------------------------------------------------------------- 1201-1250 40 60 - -------------------------------------------------------------------------------- 1151-1200 45 55 - -------------------------------------------------------------------------------- 1101-1150 50 50 - -------------------------------------------------------------------------------- 1051-1100 55 45 - -------------------------------------------------------------------------------- 1001-1050 60 40 - -------------------------------------------------------------------------------- 951-1000 65 35 - -------------------------------------------------------------------------------- 901-950 70 30 - -------------------------------------------------------------------------------- 851-900 75 25 - -------------------------------------------------------------------------------- 801-850 80 20 - -------------------------------------------------------------------------------- 751-800 85 15 - -------------------------------------------------------------------------------- 701-750 90 10 - -------------------------------------------------------------------------------- 651-700 95 5 - -------------------------------------------------------------------------------- under 650 100 0 When the S&P 500 moves into a new band on the table, the Fund will promptly rebalance the stock-bond mix to reflect the new S&P price level by redeeming shares of some Portfolio Funds and exchanging shares of other Portfolio Funds. The only exception will be a "31-day Rule"; in order to reduce transaction frequency and taxable events, after the Fund has increased its percentage Page 3 allocation to either stock funds or bond funds, it will not decrease that allocation for at least 31 days. Following a change in the fund's stock-bond index, if the S&P 500 remains within the same band for a while, normal market fluctuations will change the values of the fund's holdings of stock Portfolio Funds and Bond Portfolio Funds. We will invest cash flows from sales (or redemptions) of Fund shares to bring the stock-bond mix back toward the allocation percentages for that S&P 500 band. For example, if the S&P is in the 901-950 band, and the value of the holdings of the stock Portfolio Funds has dropped to 68% of the value of the holdings of all Portfolio Funds, new cash would be invested in the stock Portfolio Funds (or cash for redemptions would come from the bond Portfolio Funds). As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the structure and allocation ranges of the stock-bond allocation table and to make any changes considered appropriate. As an illustrative example, suppose the following market events occurred: HOW THERMOSTAT WILL INVEST DATE LEVEL OF THE S&P 500 THE STOCK/BOND ASSETS - -------------------------------------------------------------------------------- Nov. 1 We begin when the market is 1140 50% stocks, 50% bonds - -------------------------------------------------------------------------------- Dec. 1 The S&P 500 goes to 1151 rebalance 45% stocks, 55% bonds - -------------------------------------------------------------------------------- Dec. 6 The S&P 500 drops back to 1145 no reversal for 31 days - -------------------------------------------------------------------------------- Jan. 2 The S&P 500 is at 1142 rebalance 50% stocks, 50% bonds - -------------------------------------------------------------------------------- Jan. 20 The S&P 500 drops to 1099 rebalance 55% stocks, 45% bonds The market has made a continuation move by going through a second action level, not a reversal move, so the 31-day Rule does not apply in this case. - -------------------------------------------------------------------------------- Jan. 30 The S&P 500 goes up to 1105 no reversal for 31 days - -------------------------------------------------------------------------------- Feb. 20 The S&P 500 is at 1110 rebalance 50% stocks, 50% bonds The following table shows the five stock Portfolio Funds and three bond Portfolio Funds that Thermostat currently uses in its fund-of-funds structure and the current allocation percentage for each Portfolio Fund within the stock or bond category. The allocation percentage within each category is achieved by rebalancing the investments within the category whenever the S&P 500 moves into a new band on the allocation table, subject to the 31-day Rule described above. Thermostat does not liquidate its investment in one Portfolio Fund in order to invest in another Portfolio Fund except in connection with a rebalancing due to a move of the S&P 500 into a new band. Until a subsequent rebalancing, Thermostat's investments in, and redemptions from, the stock Portfolio Funds or the bond Portfolio Funds are allocated among such Portfolio Funds in a manner that will reduce any deviation of the relative values of Thermostat's holdings of such funds from the allocation percentages shown below. - ------------------------------------------------------------------------------- ALLOCATION OF STOCK/BOND ASSETS WITHIN ASSET CLASSES - ------------------------------------------------------------------------------- STOCK FUNDS TYPE OF FUND ALLOCATION - -------------------------------------------------------------------------------- Liberty Acorn Fund Small cap stock 20% - -------------------------------------------------------------------------------- Liberty Acorn Twenty Mid cap stock 15 - -------------------------------------------------------------------------------- Liberty Growth Stock Fund Large cap growth 25 Page 4 - -------------------------------------------------------------------------------- Liberty Growth & Income Fund Growth and income 25 - -------------------------------------------------------------------------------- Liberty Select Value Fund Mid cap stock 15 - -------------------------------------------------------------------------------- Total 100% BOND FUNDS TYPE OF FUND ALLOCATION - -------------------------------------------------------------------------------- Liberty Federal Securities Fund U.S. government securities 30% - -------------------------------------------------------------------------------- Liberty Intermediate Bond Fund Intermediate-term bonds 50 - -------------------------------------------------------------------------------- Columbia High-Yield Fund High-yield bonds 20 - -------------------------------------------------------------------------------- Total 100% As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the Portfolio Funds and the relative allocation percentages among the stock funds and among the bond funds and to make any changes considered appropriate. Thermostat is advised by Liberty Wanger Asset Management, L.P. ("Liberty WAM" or the "Adviser"). Each of the Portfolio Funds is managed by Liberty WAM or an affiliate of Liberty WAM. The Fund will not pay any sales load on its purchases of shares of the Portfolio Funds. Liberty WAM has a supervisory committee that meets on an annual basis, or on an "emergency" basis if necessary, to review the structure, allocation percentages and Portfolio Funds of Thermostat and to make any changes considered appropriate. The committee typically addresses the following questions: Should the stock-bond allocation table be revised? (perhaps because the stock market has made a long-term move outside of the 650-1600 S&P 500 bands) Should there be a change in the Portfolio Funds in which Thermostat invests, or should there be a change in the percentage allocations among the stock funds or the bond funds? (perhaps because of a change of portfolio managers, change of investment style or reorganization of a Portfolio Fund) Any changes by the supervisory committee are expected to be infrequent. The S&P 500 is a broad market-weighted average of U.S. blue-chip company stock performance. The investment objectives and strategies of the current Portfolio Funds are described below: LIBERTY ACORN FUND, CLASS Z ("ACORN FUND") Acorn Fund seeks to provide long-term growth of capital. 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. Acorn Fund typically looks for companies with: - - A strong business franchise that offers growth potential. Page 5 - - 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. 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." LIBERTY ACORN TWENTY, CLASS Z ("ACORN TWENTY") Acorn Twenty seeks long-term growth of capital. 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 under $15 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 $15 billion. 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 Acorn Twenty 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." LIBERTY GROWTH STOCK FUND, CLASS Z ("GROWTH STOCK FUND") Growth Stock Fund seeks long-term growth. Growth Stock Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks, primarily of companies with large market capitalizations. Growth Stock Fund may invest in any market sector but emphasizes the technology, financial services, health care, and global consumer franchise sectors. The Growth Stock Fund may invest up to 25% of its assets in foreign stocks. To select investments for the Growth Stock Fund, the Fund's investment advisor considers companies that it believes will generate earnings growth over the long term regardless of the economic environment. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Page 6 LIBERTY GROWTH & INCOME FUND, CLASS Z ("GROWTH & INCOME FUND") Growth & Income Fund seeks long-term growth and income. Under normal market conditions, Growth & Income Fund invests at least 65% of its total assets in common stock of U.S. companies with equity market capitalizations at the time of purchase in excess of $3 billion. Up to 35% of the Fund's total assets may be invested in common stock of U.S. companies with equity market capitalizations at the time of purchase between $1 billion and $3 billion. Also, up to 10% of the Fund's total assets may be invested in a combination of (i) convertible bonds, (ii) corporate bonds that are rated investment grade and (iii) U.S. Government securities. When purchasing securities for the Fund, the Fund's adviser generally chooses securities of companies it believes are undervalued. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." LIBERTY SELECT VALUE FUND, CLASS Z ("SELECT FUND") Select Fund seeks long-term growth. The Fund invests, under normal market conditions, primarily in middle capitalization stocks. Middle capitalization stocks are stocks with market capitalizations between $1 billion and the largest stock in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index) ($10.4 billion as of December 31, 2001). In addition, any stock that is a member of the S&P MidCap 400 Index is considered a middle capitalization stock. The Fund may also invest in stocks with larger or smaller capitalizations. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." LIBERTY FEDERAL SECURITIES FUND, CLASS Z ("FEDERAL SECURITIES FUND") Federal Securities Fund seeks as high a level of current income and total return as is consistent with prudent risk. Under normal market conditions, Federal Securities Fund invests at least 80% of its total assets in U.S. Government securities, including U.S. treasuries and securities of various U.S. government agencies. Agency securities include mortgage-backed securities, which represent interests in pools of mortgages. The Fund may also invest up to 20% of its assets in corporate bonds or mortgage- or asset-backed securities that are issued by a private entity. These securities must be rated investment grade by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch, Inc. ("Fitch"), an international rating agency. The fund has wide flexibility to vary its allocation among different types of U.S. government securities and the securities of non-governmental issuers based on the judgment of its adviser of which types of securities will outperform the others. In selecting investments for the Fund, the adviser considers a security's expected income together with its potential to rise or fall in price. Federal Securities Fund generally maintains a duration of greater than four and a half years and less than 10 years. As a result, the Fund's portfolio has market risks and an expected average life comparable to intermediate- to long-term bonds. The Fund's adviser may vary the Fund's duration depending on its forecast of interest rates and market conditions (for example, when interest rates are expected to increase, the adviser may shorten the duration, and vice versa). Page 7 Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." LIBERTY INTERMEDIATE BOND FUND, CLASS Z ("INTERMEDIATE BOND FUND") Intermediate Bond Fund seeks its total return by pursuing current income and opportunities for capital appreciation. Under normal circumstances, the Intermediate Bond Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in bonds, including: - - Debt securities issued by the U.S. Government; these include U.S. treasury securities and agency securities. Agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages, - - Debt securities of corporations, and - - Mortgage-backed and asset-backed securities issued by private (non-governmental) entities. Intermediate Bond Fund will invest at least 60% of its net assets in higher- quality debt securities that are at the time of purchase: - - Rated at least A by S&P; - - Rated at least A by Moody's; - - Given a comparable rating by another nationally recognized rating agency; or - - Unrated securities that the Fund's adviser believes to be of comparable quality. Intermediate Bond Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase: - - Rated below BBB by S&P; - - Rated below Baa by Moody's; - - Given a comparable rating by another nationally recognized rating agency; or - - Unrated securities that the Fund's adviser believes to be of comparable quality. Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years. The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value. In addition, to a limited extent, the Fund may seek capital appreciation by using hedging techniques such as futures and options. The manager of the Fund has wide flexibility to vary the allocation among different types of debt securities based on his judgment of which types of securities will outperform the others. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." COLUMBIA HIGH-YIELD FUND ("HIGH-YIELD FUND") High-Yield Fund seeks a high level of income, with capital appreciation as a secondary goal. Page 8 High-Yield Fund pursues its objective by investing in non-investment-grade corporate debt securities, commonly referred to as "junk" or "high-yield" bonds. Normally, the Fund will invest at least 80% of its assets in bonds rated Ba or B by Moody's or BB or B by S&P. No more than 10% of the Fund's assets will be invested in bonds rated Caa by Moody's or CCC by S&P, and no Fund assets will be invested in bonds below these grades. By focusing on higher quality junk bonds, the Fund seeks access to higher yielding bonds without assuming all the risk associated with the broader junk bond market. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - ------------------------------------------------------------------------------ The principal risks of investing in the Fund are described below. The value of an investment in the Fund is based primarily on the performance of the Portfolio Funds and the allocation of the Fund's assets among them. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk. Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. The Fund does not have the ability to affect how the portfolio managers of the Portfolio Funds manage those funds. Market risk. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds. Equity risk. Since the Fund may invest in equity Portfolio Funds, it is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. Smaller companies. Smaller companies, including small and medium-cap 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 may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, small-cap companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. Foreign securities. Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that a Portfolio Fund may, at Page 9 times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. Other risks include: possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls. Emerging markets. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. 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. Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant portion of its assets invested in a particular sector. Interest rate risk. Since the Fund may invest in bond Portfolio Funds, it is subject to interest rate risk. This is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities. Credit risk. Credit risk means that the issuing company may not be able to pay interest and principal when due. The lower-rated bonds held by the bond Portfolio Funds are subject to greater credit risk than higher-rated, lower yielding bonds. High yield bonds may be issued to fund corporate restructurings, such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar events, and they are often issued by smaller, less creditworthy companies or by companies with substantial debt. The prices of high yield bonds are generally more sensitive than higher-rated bonds to the financial condition of the issuer and adverse changes in the economy. Structure risk and prepayment risk. Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in mortgage-backed securities. Prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. Issuer risk. Because a Portfolio Fund may invest in debt securities issued or supported by private entities, including corporate bonds and mortgage-backed and asset backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, or the entity responsible for payment of a special revenue obligation changes in Page 10 general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. Lower-rated debt securities. Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher quality debt securities. Lower-rated debt securities have the added risk that the issuer of the security may default and not make payment of interest or principal. Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics. Value stocks. Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of its stock may fall, or may not approach the value the advisor has placed on it. Growth stocks. Because some of the Portfolio Funds invest in growth stocks, the Fund is subject to the risk that growth stocks may be out of favor with investors for an extended period of time. Market trends. The Fund is also subject to the risk that the investment adviser's decisions regarding asset classes and Portfolio Funds will not anticipate market trends successfully. For example, weighting Portfolio Funds that invest in common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in Portfolio Funds that invest in bonds during a period of stock market appreciation may result in lower total return. Of course, the risks associated with investing in the Fund will vary depending upon how the assets are allocated among Portfolio Funds. Affiliated fund risk. In managing Thermostat, the supervisory committee of Liberty WAM will have authority to change the Portfolio Funds in which Thermostat invests or to change the percentage allocations among the stock funds or the bond funds. Since different Portfolio Funds pay different rates of management fees to Liberty WAM or its affiliates, Liberty WAM may have a conflict of interest selecting the Portfolio Funds or in determining the relative percentage allocations among Portfolio Funds. Portfolio turnover. The Fund may buy and sell shares of the Portfolio Funds frequently. This may result in more realized income and greater income taxes, and could increase the transaction costs of the underlying funds. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Because the Fund is a new Fund and has not completed a full calendar year, information related to the Fund's performance, including a bar chart showing annual returns, has not been included in this prospectus. Average annual total returns for each Portfolio Fund as of December 31, 2001, are included in Appendix A. 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. Page 11 - ------------------------------------------------------------------------------- UNDERSTANDING EXPENSES - ------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHAREHOLDER FEES(1) (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 amount redeemed) None(2) (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 your bank. DIRECT ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS) Management fees(3)(%) 0.10 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(4)(%) 0.44 - -------------------------------------------------------------------------------- Total direct annual fund operating expenses (5)(%) 0.54 COMBINED ANNUAL FUND OPERATING EXPENSES (6) Management fees(%) 0.72 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(%) 0.78 - -------------------------------------------------------------------------------- Total combined annual fund operating expenses (%) 1.50 (3) In addition to the management fee, the Fund pays the Adviser an administrative fee of 0.05%, which is included in "Other expenses." (4) "Other expenses" are based on estimated amounts for the first year of operations. Page 12 (5) The Fund's Adviser has agreed to bear a portion of the Fund's expenses so that "Total direct annual fund operating expenses" (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) do not exceed 0.60% annually. The Adviser will have the right to recoup expense reimbursement payments made to the Fund through December 31, 2005. This will be accomplished by the payment of an expense reimbursement fee by the Fund to the Adviser computed and paid annually, with a limitation that immediately after such payment the Fund's Total direct annual fund operating expenses (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) will not exceed 0.60% annually. This arrangement may be modified or terminated at an earlier date by the Adviser. (6) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. The ratios shown above are based on an asset allocation among Portfolio Funds that would have been made as of September 10, 2002 if the Fund had commenced operations on that date, based on the respective expense ratios of the Portfolio Funds for their respective last fiscal years, as adjusted to reflect any fee waiver for any Portfolio Fund in effect as of the end of its last fiscal year. Based on this allocation, the fund's estimated indirect annual expenses would have been 0.96% (representing management fees of 0.62% and other expenses of 0.34%). Such expense ratios ranged from 0.82% to 1.35%. The indirect expense ratio of the Fund may be higher or lower depending on the portion of the Fund's assets allocated to each Portfolio Fund from time to time. The assumed allocation of the Fund's net assets among the underlying Liberty, Stein Roe and Columbia Funds as of September 10, 2002 based on the S&P 500 Index level on that date would have been as follows: Liberty Acorn Fund, 14%; Liberty Acorn Twenty Fund, 11%; Liberty Growth Stock Fund, 17%; Liberty Growth & Income Fund, 17%; Liberty Select Value Fund, 11%; Liberty Federal Securities Fund, 9%; Liberty Intermediate Bond Fund, 15%; and Columbia High Yield Fund, 6%. - ------------------------------------------------------------------------------- EXAMPLE EXPENSES (7) (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER) - ------------------------------------------------------------------------------- 1 YEAR 3 YEARS $153 $474 (7) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. - ------------------------------------------------------------------------------- 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. To receive the current trading day's price, your financial advisor must receive your request prior to the close of regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern Page 13 time. Your financial advisor may charge you fees for executing the purchase for you. - -------------------------------------------------------------------------------- By check For new accounts send a completed application and (new account) check made payable to the Fund to the transfer agent, Liberty Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By check For existing accounts fill out and return the (existing account) additional investment stub included in your account statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may acquire shares of the Fund for your account by exchanging shares you own in one fund for shares of the same class or Class A of the Fund at no additional cost. There may be an additional charge if exchanging from a money market fund. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By wire You may purchase shares of the Fund by wiring money from your bank account to your Fund account. To wire funds to your Fund account, call 1-800-422-3737 to obtain a control number and the wiring instructions. - -------------------------------------------------------------------------------- By electronic funds You may purchase shares of the Fund by transfer (existing electronically transferring money from your bank account) account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. - -------------------------------------------------------------------------------- Automatic investment plan You may make monthly or quarterly investments automatically from your bank account to your Fund account. You may select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature. - -------------------------------------------------------------------------------- Automated dollar cost You may purchase shares of the Fund for your averaging account by exchanging $100 or more each month from another fund for shares of the same class of the Fund at no additional cost. You must have a current balance of at least $5,000 in the fund the money is coming from. The designated amount will be exchanged on the third Tuesday of each month. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. You may terminate your program or change the amount of the exchange (subject to the $100 minimum) by calling 1-800-422-3737. Be sure to complete the appropriate section of the account application for this feature. Page 14 - -------------------------------------------------------------------------------- By dividend diversification You may automatically invest dividends distributed by another fund into the same class of shares of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. 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 as follows: $1,000 minimum initial investment - - any shareholder (or family member of such shareholder) who owned shares of any of the funds of Liberty Acorn Trust on September 29, 2000 (when all of the then outstanding shares of Liberty Acorn Trust were re-designated Class Z shares) and who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc., the Fund's distributor; - - any trustee of Liberty Acorn Trust, any employee of Liberty Wanger Asset Management, L.P., 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 own shares of any funds distributed by Liberty Funds Distributor, Inc. $100,000 minimum initial investment - - clients of broker-dealers or registered investment advisors that both recommend the purchase of Fund shares and charge such clients an asset-based fee; - - any insurance company, trust company or bank, purchasing shares for its own account; - - any endowment, investment company or foundation; and - - clients of investment advisory affiliates of the distributor provided that the clients meet certain criteria established by the distributor and its affiliates. No minimum initial investment - - any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Liberty Individual Retirement Account from any deferred compensation plan which was a shareholder of any of the funds of Liberty Acorn Trust on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Liberty Acorn Trust immediately prior to the distribution, transfer or rollover; - - a retirement plan (or custodian for such plan) with aggregate plan assets of at least $5 million at the time of purchase and which purchases shares directly from the distributor or through a third party broker-dealer; and - - clients of the distributor's banking affiliate that meet certain wealth management criteria. Page 15 The Fund reserves the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. 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. SALES CHARGES - ------------------------------------------------------------------------------- Your purchases of Class Z shares are at net asset value, which is the value of a Class Z share excluding any sales charge. Class Z shares are not subject to an initial sales charge when purchased, or a contingent deferred sales charge when sold. 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. - ------------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus -- CLASS Z. The Fund may also offer three additional classes of shares - Class A, B and D shares which may be 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 financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes. - ------------------------------------------------------------------------------- HOW TO EXCHANGE SHARES - ------------------------------------------------------------------------------- You may exchange your shares for Class Z 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, and you may recognize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the Adviser determines that your exchange activity is likely to adversely impact its ability to manage the Fund. 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 NYSE is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated net asset value. "Good form" means that money used to purchase your shares is fully collected. When selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, Page 16 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. 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 financial advisor sell order. To receive the current trading day's price, your financial advisor firm must receive your request prior to the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing a redemption for you. - -------------------------------------------------------------------------------- By exchange You or your financial advisor may sell shares by exchanging from the Fund into Class Z shares or Class A shares of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737. - -------------------------------------------------------------------------------- By telephone You or your financial advisor may sell shares of the Fund by telephone and request that a check be sent to your address of record by calling 1-800-422-3737, unless you have notified the Fund of an address change within the previous 30 days. The dollar limit for telephone sales is $100,000 in a 30-day period. You do not need to set up this feature in advance of your call. Certain restrictions apply to retirement accounts. For details, call 1-800-345-6611. - -------------------------------------------------------------------------------- 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 8081, Boston, MA 02266-8081. - -------------------------------------------------------------------------------- By wire You may sell shares of the Fund and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be Page 17 sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By systematic withdrawal You may automatically sell a specified dollar plan amount or percentage of your account on a monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. - -------------------------------------------------------------------------------- By electronic funds You may sell shares of the Fund and request that transfer the proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature. FUND POLICY ON TRADING OF FUND SHARES - -------------------------------------------------------------------------------- The Fund does not permit short-term or excessive trading in its shares. 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 for trading (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 which will be that day's closing net asset value per share of the respective Portfolio Funds. 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. Page 18 DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the following distributions: - ------------------------------------------------------------------------------- TYPES OF DISTRIBUTIONS - ------------------------------------------------------------------------------- Dividends Represents interest and dividends earned from securities held by the Fund, net of expenses incurred by the Fund. - -------------------------------------------------------------------------------- Capital gains Represents net long-term capital gains on sales of securities held for more than 12 months and net short-term capital gains on sales of securities held for a 12-month period or less. 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. - ------------------------------------------------------------------------------- UNDERSTANDING FUND DISTRIBUTIONS The Fund earns income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains, generally based on the number of shares you own at the time these distributions are declared. - ------------------------------------------------------------------------------- If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. - ------------------------------------------------------------------------------- DISTRIBUTION OPTIONS - ------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the Fund - ------------------------------------------------------------------------------- Reinvest all distributions in shares of another fund - ------------------------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains - ------------------------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - - 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, and all subsequent distributions, will be reinvested in additional shares of the Fund. TAX CONSEQUENCES Unless you are an entity exempt from income tax or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on the state where you live, distributions may also be subject to state and local income taxes. Page 19 In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income. Income other than net capital gains received by the Fund from the Portfolio Funds (including dividends and distributions of short-term capital gains) will be distributed by the Fund (after deductions for expenses) and will be taxable to you as ordinary income. Because the Fund is an asset allocation fund and may realize taxable net short-term capital gains by selling shares of a Portfolio Fund in its portfolio with unrealized portfolio appreciation, investing in the Fund rather than directly in the Portfolio Fund may result in increased tax liability to you since the Fund must distribute its gains in accordance with the Internal Revenue Code of 1986. Distributions of net capital gains received by the Fund from its Portfolio Funds, plus net long-term capital gains realized by the Fund from the purchase and sale of Portfolio Fund shares or other securities held by the Fund for more than one year, will be distributed by the Fund and will be taxable to you as long-term capital gains (even if you have held Fund shares for one year or less). If a shareholder who has received a capital gains distribution suffers a loss on the sale of his or her shares not more than six months after purchase, the loss will be treated as a long-term capital loss to the extent of the capital gains distribution received. Long-term capital gains, including distributions of net capital gains, are currently subject to a maximum federal tax rate of 20% and a special rate of 18% for capital assets that have been held for more than five years and whose holding periods began after December 31, 2000. This rate is less than the maximum rate imposed on other types of taxable income. Capital gains also may be advantageous since, unlike ordinary income, they may be offset by capital losses. For purposes of determining the character of income received by the Fund when a Portfolio Fund distributes net capital gains to the Fund, the Fund will treat the distribution as long-term capital gain, even if the Fund has held shares of the Portfolio Fund for one year or less. Any loss incurred by the Fund on the sale of that Portfolio Fund's shares held for six months or less, however, will be treated as a long-term capital loss to the extent of the net capital gain distribution. High portfolio turnover may cause the Fund to realize short term capital gains which, if realized and distributed by the Fund, may be taxable to shareholders as ordinary income. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws. In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling and exchanging shares of the Fund. Such transactions may be subject to federal, state and local income tax. - ------------------------------------------------------------------------------- MANAGING THE FUND - ------------------------------------------------------------------------------- INVESTMENT ADVISOR - ------------------------------------------------------------------------------- Liberty Wanger Asset Management, L.P. ("Liberty WAM"), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is Thermostat's investment advisor and is responsible for the Fund's management, subject to oversight by Page 20 the Fund's board of trustees. 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, 2001, Liberty WAM managed over $8.7 billion in assets. WAM was renamed Liberty Wanger Asset Management, L.P. on September 29, 2000. Liberty WAM is owned by Columbia Management Group, Inc., which is owned by Fleet National Bank, which is owned by FleetBoston Financial Corporation. Liberty WAM's advisory fee for managing the Fund will be 0.10% of the Fund's average daily net assets. Liberty WAM will also receive an administrative fee from the Fund at the annual rate of 0.05% of the Fund's average daily net assets. The Portfolio Funds are managed by Liberty WAM and its affiliates, Colonial Management Associates, Inc. ("Colonial"), Columbia Management Company ("Columbia") and Stein Roe & Farnham Incorporated ("Stein Roe"). The mutual fund and institutional investment advisory business of Liberty WAM, Colonial, Columbia and Stein Roe are part of a larger business unit known as Columbia Asset Management ("CAM") that includes several separate legal entities that are managed by a single management team. They also share personnel, facilities and systems that may be used in providing administrative or operational services to Thermostat. They and the other entities that make up CAM are indirect, wholly owned subsidiaries of FleetBoston Financial Corporation. PORTFOLIO MANAGERS - ------------------------------------------------------------------------------- Liberty WAM uses a supervisory committee to review on an infrequent basis the structure and allocation ranges of Thermostat and to make any changes considered appropriate. The members of the committee are Ralph Wanger, Charles P. McQuaid and Harvey B. Hirschhorn. RALPH WANGER Ralph Wanger has been the president and chief investment officer of Liberty WAM and Wanger Asset Management, L.P. ("WAM") since 1992, 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 and president of WAM Acquisition GP, Inc. since September 29, 2000. He was a principal of WAM and president of Wanger Asset Management Ltd. from July 1992 until September 29, 2000. Mr. Wanger is the president of Wanger Advisors Trust and serves as a director of Wanger Investment Company plc. 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 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 since July 1992, and was a principal of WAM from July 1992 to September 29, 2000. Mr. McQuaid has been a member of Liberty Acorn Fund's management team since 1978, and has co-managed Liberty Acorn Fund since 1995. Mr. McQuaid is also a senior vice president of Wanger Advisors Trust. He is a CFA, and earned his BBA from the University of Massachusetts and his MBA from the University of Chicago. HARVEY B. HIRSCHHORN Harvey Hirschhorn, a vice president of Liberty WAM, joined Stein Roe in 1973. Mr. Hirschhorn is executive vice president and chief economist and investment strategist of Stein Roe. He holds an A.B. degree from Rutgers University and a M.B.A. degree from the University of Chicago, and is a CFA. Page 21 - ------------------------------------------------------------------------------- OTHER INVESTMENT STRATEGIES AND RISKS - ------------------------------------------------------------------------------- Thermostat's principal investment strategies and their associated risks are described above. This section provides more detail about the investment strategies of the Portfolio Funds, and describes other investments the Portfolio Funds may make and the risks associated with them. In seeking to achieve their investment goals, the Portfolio Funds may invest in various types of securities and engage in various investment techniques that are not their principal focus and therefore are not described in this prospectus. These types of securities and investment practices are identified and discussed in Thermostat's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as otherwise noted, approval by Thermostat's shareholders is not required to modify or change Thermostat's investment goal or any of its investment strategies. DERIVATIVE STRATEGIES - ------------------------------------------------------------------------------- The Portfolio Funds may enter into a number of hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Portfolio Funds may use these strategies to adjust their sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to a Portfolio Fund. ASSET-BACKED SECURITIES - ------------------------------------------------------------------------------- Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and therefore, cause a Portfolio Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. MORTGAGE-BACKED SECURITIES - ------------------------------------------------------------------------------- Mortgage-backed securities are securities that represent ownership interests in large, diversified pools of mortgage loans. Sponsors pool together mortgages of similar rates and terms and offer them as a security to investors. Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae, and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. Page 22 In addition, the potential impact of prepayment on the price of a mortgage- backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. 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. - -------------------------------------------------------------------------------- APPENDIX A - -------------------------------------------------------------------------------- The following after tax returns of the Portfolio Funds are calculated using the historical highest individual federal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and may not be relevant to investors who hold Portfolio Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - -------------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Average annual total returns are a measure of a Portfolio Fund's average performance over the past one-year, five-year and ten-year periods. They include the effects of Portfolio Fund expenses. The Portfolio Fund's returns are compared to an index selected by the Portfolio Funds' advisor. All third party trademarks are the property of their owners. Unlike each Portfolio Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2001 Inception Date 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Liberty Acorn Fund, 6/10/70 Class Z (1) (%) Return Before Taxes 6.14 15.60 16.61 Return After Taxes on Distributions 5.64 12.97 14.17 Return After Taxes on Distributions and Sale of Fund Shares 4.13 12.41 13.47 - -------------------------------------------------------------------------------- Russell 2000(R)Index (%) n/a 2.49 7.52 11.51 (1) The Fund's Class Z share total annual fund operating expenses at December 31, 2001 were 0.82% and Class Z net assets of the Fund were (in millions) $4,220. Page 23 Inception Life of the Date 1 Year 3 Years Fund - -------------------------------------------------------------------------------- Liberty Acorn Twenty, 11/23/98 Class Z (2) (%) Return Before Taxes 8.00 15.97 17.95 Return After Taxes on Distributions 7.96 15.04 17.04 Return After Taxes on Distributions and Sale of Fund Shares 4.91 12.81 14.51 - -------------------------------------------------------------------------------- S&P Mid Cap 400 Index (%) n/a -0.62 10.24 13.66 (2) The Fund's Class Z share total annual fund operating expenses at December 31, 2001 (exclusive of any voluntary fee waiver) were 1.38% and Class Z net assets of the Fund were (in millions) $70. Inception Life of the Date(3) 1 Year 5 Years Fund - -------------------------------------------------------------------------------- Liberty Growth & Income Fund, Class Z (4) (%) 2/7/01 Return Before Taxes -0.17 15.98 15.87 Return After Taxes on Distributions -2.59 13.15 13.33 Return After Taxes on Distributions and Sale of Fund Shares 0.69 12.63 12.69 - -------------------------------------------------------------------------------- S&P 500 Index (%) n/a -11.88 10.70 13.73(5) (3) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would be higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 1, 1992, and Class Z shares were initially offered on February 7, 2001. (4) The Fund's Class Z share total annual fund operating expenses at June 30, 2002 (exclusive of any voluntary fee waiver) were 1.11% and Class Z net assets of the Fund were (in millions) $5. (5) Performance information is from June 30, 1992. Inception Date 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Liberty Growth Stock Fund, Class Z (6) (%) 7/1/58 Return Before Taxes -23.94 8.77 10.34 Return After Taxes on Distributions -23.94 7.49 8.36 Return After Taxes on Distributions and Sale of Fund Shares -14.58 7.44 8.14 - -------------------------------------------------------------------------------- S&P 500 Index (%) n/a -11.88 10.70 12.93 (6) The Fund's Class Z share total annual fund operating expenses at September 30, 2001 (exclusive of any voluntary fee waiver) were 0.96% and Class Z net assets of the Fund were (in millions) $551. Page 24 Inception Date (7) 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Liberty Select Value Fund Class Z (8) (%) 2/8/01 Return Before Taxes 2.50 14.60 14.59 Return After Taxes on Distributions 2.33 12.42 11.74 Return After Taxes on Distributions and Sale of Fund Shares 1.57 11.54 11.13 - -------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a -0.62 16.11 15.01 (7) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the Class Z shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 21, 1949 and Class Z shares were initially offered on February 8, 2001. (8) The Fund's Class Z share total annual fund operating expenses at October 31, 2001 were 0.99% and Class Z net assets of the Fund were (in millions) $417. Inception Date (9) 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Liberty Federal Securities Fund, Class Z (10) (%) 1/11/99 Return Before Taxes 7.00 6.73 6.59 Return After Taxes on Distributions 4.56 4.06 3.80 Return After Taxes on Distributions and Sale of Fund Shares 4.23 4.04 3.88 - -------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (%) n/a 10.47 6.18 7.19 (9) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on March 30, 1984, and Class Z shares were initially offered on January 11, 1999. (10) The Fund's Class Z share total annual fund operating expenses at August 31, 2001 were 0.90% and Class Z net assets of the Fund were (in thousands) $13. Page 25 Inception Date 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Liberty Intermediate Bond Fund, Class Z (11) (%) 12/5/78 Return Before Taxes 9.18 7.33 7.14 Return After Taxes on Distributions 6.35 4.51 4.28 Return After Taxes on Distributions and Sale of Fund Shares 5.55 4.45 4.29 - -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (%) n/a 8.44 7.43 7.23 (11) The Fund's Class Z share total annual fund operating expenses at June 30, 2002 were 0.79% and Class Z net assets of the Fund were (in millions) $730. Inception Life of the Date 1 Year 5 Years Fund - -------------------------------------------------------------------------------- Columbia High Yield Fund (12) (%) 10/1/93 Return Before Taxes 6.63 6.46 7.28 Return After Taxes on Distributions 3.49 2.98 3.78 Return After Taxes on Distributions and Sale of Fund Shares 4.00 3.44 4.06 - -------------------------------------------------------------------------------- Salomon BB Index (%) n/a 13.48 7.79 8.41 - -------------------------------------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index (%) n/a 6.20 3.95 6.24 - -------------------------------------------------------------------------------- Merrill Lynch Intermediate BB n/a 9.99 6.29 7.20 Index (%) (12) The Fund's total annual fund operating expenses at December 31, 2001 were 0.85% and net assets of the Fund were (in millions) $239. Page 26 - ------------------------------------------------------------------------------ NOTES - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Page 27 FOR MORE INFORMATION - ------------------------------------------------------------------------------ Additional information about the Fund's investments will be published in the Fund's semiannual and annual reports to shareholders. The annual report will contain a discussion of the market conditions and investment strategies that significantly affected the Fund's performance 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: 811-01829 - - Columbia Thermostat Fund - ------------------------------------------------------------------------------- [Logo] LIBERTYFUNDS A MEMBER OF COLUMBIA MANAGEMENT GROUP (C) 2002 Liberty Funds Distributor, Inc. A Member of Columbia Management Group One Financial Center Boston, MA 02111-2621 800.426.3750 www.libertyfunds.com 143-01/133L-0902 SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 2002 The information in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. LIBERTY ACORN TRUST STATEMENT OF ADDITIONAL INFORMATION September __, 2002 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 with respect to Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty or Liberty Acorn Foreign Forty dated May 1, 2002, or, with respect to Columbia Thermostat Fund dated September __, 2002 (Class Z) or February 1, 2003 (Class A, B and D). 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. Audited financial statements, which are contained in the Funds' December 31, 2001 Annual Report, and unaudited financial statements, which are contained in the Funds' June 30, 2002 Semiannual Report, are incorporated by reference into this SAI. TABLE OF CONTENTS Page Definitions 2 Organization and History 2 Investment Policies 2 Portfolio Turnover 15 Additional Information Concerning Certain Investment Practices 15 Taxes - General 28 Management of the Trust 31 Liberty Acorn Charges and Expenses 42 Code of Ethics 49 Custodian 49 Independent Auditors 49 Determination of Net Asset Value 49 How to Buy Shares 50 Special Purchase Programs/Investor Services 51 Programs for Reducing or Eliminating Sales Charges 51 How to Sell Shares 53 How to Exchange Shares 55 Suspension of Redemptions 55 Shareholder Liability 55 Shareholder Meetings 56 Performance Measures and Information 56 Appendix I - Description of Bond Ratings 66 ACN-16/596J-0402 LIBERTY ACORN TRUST STATEMENT OF ADDITIONAL INFORMATION September __, 2002 DEFINITIONS "Trust" Liberty Acorn Trust "Funds" Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty, Liberty Acorn Foreign Forty and Columbia Thermostat Fund "Portfolio Funds" Funds in which Columbia Thermostat Fund may invest, including Liberty Acorn Fund, Liberty Acorn Twenty, Liberty Growth Stock Fund, Liberty Growth & Income Fund, Liberty Select Value Fund, Liberty Federal Securities Fund, Liberty Intermediate Bond Fund and Columbia High-Yield Fund "Adviser" or "Liberty WAM" Liberty Wanger Asset Management, L.P., the Funds' investment advisor and administrator "LFD" Liberty Funds Distributor, Inc., the Funds' distributor "LFS" Liberty Funds Services, Inc., the Funds' 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 (other than Columbia Thermostat Fund) 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, and COLUMBIA THERMOSTAT FUND invests with the objective of long-term total return. The Funds are not designed for investors seeking primarily income rather than capital appreciation. The Funds are not, alone or together, a balanced investment program, and there can be no assurance that any of the Funds will achieve its investment objective. COLUMBIA THERMOSTAT FUND is a fund of funds that invests in shares of certain portfolios (the "Portfolio Funds") of Liberty Acorn Trust, Liberty-Stein Roe Funds Investment Trust, Liberty Funds Trust III, Liberty Funds Trust VI, Liberty-Stein Roe Funds Income Trust and Columbia High-Yield Fund, Inc. (the "Underlying Trusts"), all of which are managed by the Adviser or an affiliate of the Adviser. COLUMBIA THERMOSTAT FUND may invest in the following Portfolio Funds: Liberty Acorn Fund, Liberty Acorn Twenty, Liberty Growth Stock Fund, Liberty Growth & Income Fund, Liberty Select Value Fund, Liberty Federal Securities Fund, Liberty Intermediate Bond Fund and Columbia High-Yield Fund. 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. The Portfolio Funds in which COLUMBIA THERMOSTAT FUND invests may, but need not, have the same investment policies as COLUMBIA THERMOSTAT FUND. 2 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 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Make loans, but this restriction shall not prevent the fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures. [The fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets.]; 6. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market, including repurchase agreements maturing in more than seven days, to not more than 15% of its total assets at the time of acquisition; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises that invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Sell securities short or maintain a short position, except short sales against-the-box. 11. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. 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; 4 6. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Neither LIBERTY ACORN TWENTY nor LIBERTY ACORN FOREIGN FORTY will: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at the time of investment) in securities is of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities [this restriction applies only to LIBERTY ACORN FOREIGN FORTY]; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. With respect to 50% of the value of the Fund's total assets, purchase the securities of any issuer (other than cash items and U.S. government securities and securities of other investment companies) if such purchase would cause the Fund's holdings of that issuer to exceed 5% of the Fund's total assets; 4. Invest more than 25% of its total assets in a single issuer (other than U.S. government securities); 5. Invest more than 25% of its total assets in the securities of companies in a single industry (excluding U.S. government securities); 6. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt securities, (b) investing in repurchase agreements, or (c) lending its portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 7. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 8. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 9. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 10. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 11. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 12. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. 5 COLUMBIA THERMOSTAT FUND will: 1. Concentrate its investments in shares of other mutual funds. In addition, COLUMBIA THERMOSTAT FUND will not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except shares of Portfolio Funds and securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 3. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 4. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 5. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 6. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 7. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 8. Sell securities short or maintain a short position, except short sales against-the-box; 9. Invest in companies for the purpose of management or the exercise of control; 10. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. As non-fundamental investment policies which may be changed without a shareholder vote, each Fund may not: a. Under normal circumstances, invest less than 80% of its net assets (plus any borrowings for investment purposes) in the securities of foreign companies based in developed markets outside the U.S. [this restriction applies only to LIBERTY ACORN FOREIGN FORTY, which will notify shareholders at least 60 days prior to any change in this policy]; b. Under normal circumstances, invest less than 80% of its net assets (plus any borrowings for investment purposes) in domestic securities [this restriction applies only to LIBERTY ACORN USA, which will notify shareholders at least 60 days prior to any change in this policy]; c. Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940; d. Invest more than 33% of its total assets (valued at time of investment) in securities of foreign issuers [this restriction applies only to LIBERTY ACORN FUND]; 6 e. Invest more than 15% of its total assets in the securities of foreign issuers [this restriction applies only to LIBERTY ACORN TWENTY]; f. Invest more than 10% of its total assets (valued at the time of investment) in securities of foreign issuers, not including securities represented by American Depository Receipts [this restriction applies only to LIBERTY ACORN USA]; g. Invest more than 15% of its total assets in domestic securities, under normal market conditions [this restriction applies only to LIBERTY ACORN FOREIGN FORTY]; h. Invest in companies for the purpose of management or the exercise of control; i. Pledge, mortgage or hypothecate its assets, except as may be necessary in connection with permitted borrowings or in connection with short sales, options, futures and options on futures; j. Invest more than 10% of its total assets (valued at the time of investment) in restricted securities [this restriction applies only to LIBERTY ACORN FUND, LIBERTY ACORN INTERNATIONAL, LIBERTY ACORN USA and COLUMBIA THERMOSTAT FUND]; k. Invest more than 15% of its net assets (valued at time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; l. Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities; and m. Acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or (G) of the Investment Company Act of 1940 [this restriction applies only to LIBERTY ACORN FUND and LIBERTY ACORN TWENTY]. 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, LIBERTY ACORN USA or LIBERTY ACORN FOREIGN FORTY such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of 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. A Fund's purchase of investment company securities results in the bearing of expenses such that shareholders would indirectly bear a proportionate share of the operating expenses of such investment company, including advisory fees. Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the Act's diversification requirement, an issuer is the entity whose revenues support the security. The investment restrictions of each of the Portfolio Funds in which COLUMBIA THERMOSTAT FUND may invest are listed below. LIBERTY ACORN FUND - see investment restrictions listed above LIBERTY ACORN TWENTY - see investment restrictions listed above 7 LIBERTY-STEIN ROE GROWTH STOCK FUND FUNDAMENTAL INVESTMENT POLICIES Liberty Growth Stock Fund may not: 1. with respect to 75% of its total assets, invest more than 5% of its total assets, taken at market value at the time of a particular purchase, in the securities of a single issuer, except for securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or repurchase agreements for such securities, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 2. acquire more than 10%, taken at the time of a particular purchase, of the outstanding voting securities of any one issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 3. act as an underwriter of securities, except insofar as it may be deemed an underwriter for purposes of the Securities Act of 1933 on disposition of securities acquired subject to legal or contractual restrictions on resale, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 4. purchase or sell real estate (although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate or interests therein), commodities, or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 5. make loans, although it may (a) lend portfolio securities and participate in an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly distributed or privately placed debt securities; 6. borrow except from banks, other affiliated funds and other entities to the extent permitted by the Investment Company Act of 1940; 7. invest in a security if more than 25% of its total assets (taken at market value at the time of a particular purchase) would be invested in the securities of issuers in any particular industry, except that this restriction does not apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or 8. issue any senior security except to the extent permitted under the Investment Company Act of 1940. Non-Fundamental Investment Policies - ----------------------------------- None of the following restrictions shall prevent Liberty Growth Stock Fund from investing all or substantially all of its assets in another investment company having the same investment objective and substantially the same investment policies as the Fund. Liberty Growth Stock Fund may not: a. invest in any of the following: (i) interests in oil, gas, or other mineral leases or exploration or development programs (except readily marketable securities, including but not limited to master limited partnership interests, that may represent indirect interests in oil, gas, or other mineral exploration or development programs); (ii) puts, calls, straddles, spreads, or any combination thereof (except that it may enter into transactions in options, futures, and options on futures); (iii) shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; and (iv) limited partnerships in real estate unless they are readily marketable; b. invest in companies for the purpose of exercising control or management; 8 c. purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets; d. invest more than 5% of its net assets (valued at time of purchase) in warrants, nor more than 2% of its net assets in warrants that are not listed on the New York or American Stock Exchange; e. write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity; f. invest more than 25% of its total assets (valued at time of purchase) in securities of foreign issuers (other than securities represented by American Depositary Receipts (ADRs) or securities guaranteed by a U.S. person); g. purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; h. purchase securities on margin (except for use of short-term credits as are necessary for the clearance of transactions), or sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales; i. invest more than 5% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or j. invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days. LIBERTY GROWTH & INCOME FUND Fundamental Investment Policies - ------------------------------- Liberty Growth & Income Fund may: 1. Borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; 2. Only own real estate acquired as the result of owning securities; the value of such real estate may not exceed 5% of total assets; 3. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets; 4. Not issue senior securities except as provided in paragraph 1 above and to the extent permitted by the 1940 Act. 5. Underwrite securities issued by others only when disposing of portfolio securities; 6. Make loans (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements; and 9 7. Not concentrate more than 25% of its total assets in any one industry or, with respect to 75% of total assets, purchase any security (other than obligations of the U.S. government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer, or purchase voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer. Non-Fundamental Investment Policies - ----------------------------------- As non-fundamental investment policies which may be changed without a shareholder vote, the Fund may not: 1. Purchase securities on margin, but the Fund may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; 3. Purchase or sell commodity contracts if the total initial margin and premiums on the contracts exceeds 5% of its total assets; 4. Invest more than 15% of its net assets in illiquid assets; and 5. Invest more than 10% in American Depository Receipts. Notwithstanding the investment policies and restrictions of Liberty Growth & Income Fund, the Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment objective, policies and restrictions as the Fund. Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, the issuer is the entity whose revenues support the security. LIBERTY SELECT VALUE FUND The Fund may: 1. Borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; 2. Only own real estate acquired as the result of owning securities and not more than 5% of total assets; 3. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets; 4. Not issue senior securities except as provided in paragraph 1 above and to the extent permitted by the Act; 5. Underwrite securities issued by others only when disposing of portfolio securities; 6. Make loans (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements; and 7. Not concentrate more than 25% of its total assets in any one industry or with respect to 75% of total assets purchase any security (other than obligations of the U.S. government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer, or purchase voting securities of an issuer if, as a result of such purchase the Fund would own more than 10% of the outstanding voting shares of such issuer. 10 Non-Fundamental Investment Policies - ----------------------------------- As non-fundamental investment policies which may be changed without a shareholder vote, the Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and 3. Invest more than 15% of its net assets in illiquid assets. Notwithstanding the investment policies and restrictions of the Fund, the Fund may invest substantially all of its investable assets in another investment company that has substantially the same investment goal, policies and restrictions as the Fund. LIBERTY FEDERAL SECURITIES FUND Fundamental Investment Policies - ------------------------------- Liberty Federal Securities Fund may: 1. Borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; 2. Only own real estate acquired as the result of owning securities; and not more than 5% of total assets; 3. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets; 4. Not issue senior securities except as provided in paragraph 1 above and to the extent permitted by the [1940] Act; 5. Underwrite securities issues by other only when disposing of portfolio securities; 6. Make loans (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements; and 7. Not concentrate more than 25% of its total assets in any one industry, or with respect to 75% of total assets purchase any security (other than obligations of the U.S. government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer, or purchase voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer. Non-Fundamental Investment Policies - ----------------------------------- As non-fundamental investment policies which may be changed without a shareholder vote, Liberty Federal Securities Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; and 2. Invest more than 15% of its net assets in illiquid assets. 11 LIBERTY INTERMEDIATE BOND FUND Fundamental Investment Policies - ------------------------------- As fundamental investment policies, the Liberty Intermediate Bond Fund and SR&F Intermediate Bond Portfolio may not: 1. invest in a security if, as a result of such investment, more than 25% of its total assets (taken at market value at the time of such investment) would be invested in the securities of issuers in any particular industry, except that this restriction does not apply to (i) repurchase agreements, or (ii) securities of issuers in the financial services industry, and [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 2. invest in a security if, with respect to 75% of its assets, as a result of such investment, more than 5% of its total assets (taken at market value at the time of such investment) would be invested in the securities of any one issuer, except that this restriction does not apply to U.S. Government Securities or repurchase agreements for such securities and [Fund only] except that all or substantially all of the assets of the fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 3. invest in a security if, as a result of such investment, it would hold more than 10% (taken at the time of such investment) of the outstanding voting securities of any one issuer, [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 4. purchase or sell real estate (although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein); 5. purchase or sell commodities or commodities contracts or oil, gas or mineral programs, except that it may enter into (i) futures and options on futures and (ii) forward contracts; 6. make loans, although it may (a) lend portfolio securities and participate in an interfund lending program with other Stein Roe Funds and Portfolios provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly distributed or privately placed debt securities; 7. borrow except from banks, other affiliated funds and other entities to the extent permitted by the 1940 Act; 8. act as an underwriter of securities, except insofar as it may be deemed to be an "underwriter" for purposes of the Securities Act of 1933 on disposition of securities acquired subject to legal or contractual restrictions on resale, [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or 9. issue any senior security except to the extent permitted under the 1940 Act. Non-Fundamental Investment Policies - ----------------------------------- As non-fundamental investment policies which may be changed without a shareholder vote, Liberty-Stein Roe Intermediate Bond Fund may not: (A) invest for the purpose of exercising control or management; (B) purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the 12 purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets; (1) (C) purchase portfolio securities from, or sell portfolio securities to, any of the officers and directors or trustees of the Trust or of its investment adviser; (D) purchase shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; (E) invest more than 5% of its net assets (valued at time of investment) in warrants, no more than 2% of its net assets in warrants which are not listed on the New York or American Stock Exchange; (F) purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; (G) write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity; (H) invest in limited partnerships in real estate unless they are readily marketable; (I) sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales; (J) invest more than 15% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; (K) invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days; (L) purchase securities on margin, except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with transactions in options, futures, and options on futures. (1) The Fund has been informed that the staff of the Securities and Exchange commission takes the position that the issuers of certain collateralized mortgage obligations and certain other collateralized assets are investment companies and that subsidiaries of foreign banks may be investment companies for purposes of Section 12(d)(1) of the Investment Company Act of 1940, which limits the ability of one investment company to invest in another investment company. Accordingly, the Fund intends to operate within the applicable limitations under Section 12(d)(1)(A) of that Act. COLUMBIA HIGH-YIELD FUND Fundamental Investment Policies - ------------------------------- Columbia High Yield Fund may not: 1. Buy or sell commodities or commodity futures contracts. 2. Concentrate investments in any industry. However, it may (a) invest up to 25 percent of the value of its total assets in any one industry, (b) invest up to 100 percent of the value of its total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and (c) invest for defensive purposes up to 80 percent of the value of its total assets in CDs and bankers' acceptances with maturities not greater than one year. CDs and bankers' acceptances will be limited to domestic banks which have total assets in excess of $1 billion and are subject to regulatory supervision by the U.S. Government or state governments. Commitments to purchase securities issued or guaranteed by the U.S. Government or its agencies or instrumentalitites on a "when-issued" basis may not exceed 20 percent of the total assets of 13 the Fund. Emphasis on investments in securities of a particular industry will be shifted whenever [the Adviser] determines that such action is desirable for investment reasons. The Board of Directors will periodically review these decisions of the [Adviser]. 3. Buy or sell real estate. However, the Fund may purchase or hold readily marketable securities issued by companies, such as real estate investment trusts, that operate in real estate or interests therein, and participation interests in pools of real estate mortgage loans. 4. Make loans to other persons (except by purchase of short-term commercial paper, bonds, debentures, or other debt securities constituting part of an issue). The Fund may lend portfolio securities to broker-dealers or other institutional investors if, as a result thereof, the aggregate value of all securities loaned does not exceed 33 1/3 percent of its total assets. 5. Purchase illiquid securities, including restricted securities and repurchase agreements of more than seven days maturity, if upon the purchase more than 10 percent of the value of the Fund's net assets would consist of these securities. "Illiquid securities" are securities that may not be sold or disposed of in the ordinary course of business within seven days at approximately the price used to determine the Fund's net asset value and include restricted securities that are subject to legal or contractual restrictions on resale. Certain restricted securities that can be resold to qualifying institutions pursuant to a regulatory exemption under Rule 144A of the Securities Act of 1933 and for which a dealer or institutional trading market exists may be deemed to be liquid securities by the Board of Directors of the Fund and, therefore, are not subject to the above investment restriction. 6. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 10 percent of the outstanding voting securities of that issuer to be held in the Fund. 7. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 5 percent of the value of its total assets at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its instrumentalities), with reference to 75 percent of the assets of the Fund. 8. Purchase or retain securities of an issuer if those officers or directors of the Fund or the Adviser who individually own more than 1/2 of 1 percent of the outstanding securities of that issuer together own more than 5 percent of such securities. 9. Purhcase securities of other open-end investment companies. 10. Issue senior securities, bonds, or debentures. 11. Underwrite securities of other issuers, except the Fund may acquire portfolio securities in circumstances where, if the securities are later publicly offered or sold by the Fund, it might be deemed to be an underwriter for purposes of the Securities Act of 1933. 12. Borrow money except as a temporary measure for extraordinary or emergency purposes. Its borrowings may not exceed 5 percent of the gross assets of the Fund valued at the lesser of cost or market value, nor may it pledge, mortgage, or hypothecate assets valued at market to an extent greater than 10 percent of the gross assets valued at cost of the Fund. 13. Invest in the securities of any company if the purchase, at the time thereof, would cause more than 5 percent of the value of the Fund's total assets to be invested in companies which, including predecessors and parents, have a record of less than three years continuous operation. 14. Invest in companies to exercise control or management. 15. Buy any securities or other property on margin, except for short-term credits necessary for clearing transactions and except that margin payments and other deposits in connection with transactions in options, futures, and forward contracts shall not be deemed to constitute purchasing securities on margin. 16. Engage in short sales of securities except to the extent that it owns other securities convertible into an equivalent amount of such securities. These short sales may only be made to protect a profit in or to attempt to minimize a loss with respect to 14 convertible securities. In any event, no more than 10 percent of the Fund's net assets valued at market may, at any time, be held as collateral for such sales. 17. Invest directly in oil, gas, or other mineral development or exploration programs or leases; although, the Fund may own securities of companies engaged in those businesses. 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%, and of LIBERTY ACORN INTERNATIONAL, LIBERTY ACORN FOREIGN FORTY and LIBERTY ACORN TWENTY are likely to be below 75%, 100% and 125%, respectively. Although under normal market conditions the portfolio turnover rate of COLUMBIA THERMOSTAT FUND is expected to be 100%, it could exceed this amount. ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT PRACTICES In this section the term "Fund" refers to a Fund or a Portfolio Fund except where otherwise indicated. Additional information concerning certain of the Funds' investments and investment practices is set forth below. COMMON STOCKS LIBERTY ACORN FUND, LIBERTY ACORN INTERNATIONAL, LIBERTY ACORN USA, LIBERTY ACORN TWENTY and LIBERTY ACORN FOREIGN FORTY will invest mostly in common stocks, which represent an equity interest (ownership) in a corporation. COLUMBIA THERMOSTAT FUND invests in shares of Portfolio Funds, some of which invest in common stocks. This ownership interest often gives a Fund or Portfolio Fund the right to vote on measures affecting the company's organization and operations. The Funds and some Portfolio Funds also invest in other types of equity securities, including preferred stocks and securities convertible into common stocks. Some of the Portfolio Funds also invest in fixed-income securities. Over time, common stocks have historically provided superior long-term capital growth potential. However, stock prices may decline over short or even extended periods. Stock markets tend to move in cycles, with periods of rising stock prices and periods of falling stock prices. As a result, the Funds should be considered long-term investments, designed to provide the best results when held for several years or more. The Funds may not be suitable investments if you have a short-term investment horizon or are unwilling to accept fluctuations in share price, including significant declines over a given period. Under normal conditions, the common stock investments of the Funds other than COLUMBIA THERMOSTAT FUND (as a percent of total assets) are allocated as follows: - -------------------------------------------------------------------------- U.S. COMPANIES FOREIGN COMPANIES - -------------------------------------------------------------------------- FUND MAXIMUM MAXIMUM - -------------------------------------------------------------------------- Liberty Acorn Fund no limit up to 33% Liberty Acorn International up to 25% no limit Liberty Acorn USA no limit up to 10% Liberty Acorn Twenty no limit up to 15% Liberty Acorn Foreign Forty up to 15% no limit - -------------------------------------------------------------------------- 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. COLUMBIA THERMOSTAT FUND invests in Portfolio Funds that may have their own geographic limits. DIVERSIFICATION Diversification is a means of reducing risk by investing in a broad range of stocks or other securities. Because LIBERTY ACORN TWENTY is non-diversified, it has the ability to take larger positions in a smaller number of issuers. The appreciation or depreciation of a single stock may have a greater impact on the NAV of a non-diversified fund, because it is likely to have a greater percentage of its assets invested in that stock. As a result, the share price of LIBERTY ACORN TWENTY can be expected to fluctuate more than that of broadly diversified Funds investing in similar securities. Because it is non-diversified, LIBERTY ACORN 15 TWENTY is not subject to the limitations under the Act in the percentage of its assets that it may invest in any one issuer. The Fund, however, intends to comply with the diversification standards for regulated investment companies under Subchapter M of the Internal Revenue Code (summarized above under "Investment Policies"). Although LIBERTY ACORN FOREIGN FORTY was previously registered as a non-diversified fund, its investments remained diversified through November 23, 2001 (three years after it began operations). As a result, the Fund lost the ability to invest in a non-diversified manner and is now considered a diversified fund. LIBERTY ACORN FOREIGN FORTY will not be able to become non-diversified unless it seeks and obtains the approval of the holders of a "majority of its outstanding voting securities," as defined in the Act. FOREIGN SECURITIES The Funds and some Portfolio Funds invest in foreign securities, which may entail a greater degree of risk (including risks relating to exchange rate 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 International no limit Liberty Acorn USA up to 10% Liberty Acorn Twenty up to 15% Liberty Acorn Foreign Forty no limit - ---------------------------------------------------------- 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 interests 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. COLUMBIA THERMOSTAT FUND invests in Portfolio Funds that may have their own geographic limits. LIBERTY ACORN TWENTY usually limits its investments in foreign companies to those whose operations are primarily in the U.S. The Funds and some Portfolio Funds may invest in securities of foreign issuers directly or in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. GDRs trade in both domestic and foreign markets. Generally ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. The Funds and some Portfolio Funds may invest in both "sponsored" and "unsponsored" depositary receipts. In a sponsored depositary receipt, 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 Liberty Acorn Funds expects to invest 5% or more of its total assets in unsponsored depositary receipts. The investment performance of a Fund that invests in securities of foreign issuers is affected by the strength or weakness of the U.S. dollar against the currencies of the foreign markets in which its securities trade or in which they are denominated. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio 16 will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. (See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions.") CURRENCY EXCHANGE TRANSACTIONS The Funds and some Portfolio Funds may enter into currency exchange transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded, and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions, except to the extent described below under "Synthetic Foreign Money Market Positions." Transaction hedging is the purchase or sale of a forward contract with respect to specific payables or receivables of a fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to a portfolio security position denominated or quoted in a particular currency. A Fund may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in that currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, the Adviser may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated purchase of portfolio securities, assets of that Fund having a value at least as great as the Fund's commitment under such forward contract will be segregated on the books of the Fund while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may either sell the portfolio security related to 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. 17 SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The Funds may invest in money market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment, the Funds may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated in one currency (generally U.S. dollars) and (b) concurrently entering into a forward contract to deliver a corresponding amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example, a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short-term U.S. dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign money market instruments. The results of a direct investment in a foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical. Except to the extent a synthetic foreign money market position consists of a money market instrument denominated in a foreign currency, the synthetic foreign money market position shall not be deemed a "foreign security" for purposes of the Funds' investment limits. OTC DERIVATIVES. The Funds may buy and sell over-the-counter ("OTC") derivatives. Unlike exchange-traded derivatives, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC derivatives (derivatives not traded on exchanges) generally are established through negotiation with the other party to the contract. 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 (not including the Portfolio Funds) will limit its investments so that no more than 5% of its total assets will be placed at risk in the use of OTC derivatives. See "Illiquid and Restricted Securities" below for more information on the risks associated with investing in OTC derivatives. RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets, the currency markets, and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign currency, a Fund foregoes, during the option's life, the opportunity to profit from currency appreciation. If trading were suspended in an option purchased or written by 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. - ----------------- /1/ A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. 18 The Funds may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities and indexes (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. To the extent required by regulatory authorities having jurisdiction over the Funds, the Funds will limit their use of futures contracts and futures options to hedging transactions. For example, a Fund might use futures contracts to hedge against fluctuations in the general level of stock prices, anticipated changes in interest rates, or currency fluctuations that might adversely affect either the value of the Fund's securities or the price of the securities that the Fund intends to purchase. The Fund's hedging may include sales of futures contracts as an offset against the effect of expected declines in stock prices or currency exchange rates or increases in interest rates and purchases of futures contracts as an offset against the effect of expected increases in stock prices or currency exchange rates or declines in interest rates. Although other techniques could be used to reduce the Funds' exposure to stock price, interest rate, and currency fluctuations, the Funds may be able to hedge their exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any hedging technique depends on 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 19 portfolio. A decision as to whether, when, and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. LIMITATIONS ON OPTIONS AND FUTURES. A Fund (excluding the Portfolio Funds) will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held by that Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," /2/ would exceed 5% of the Fund's total assets. When purchasing a futures contract or writing a put option on a futures contract, a Fund must maintain with its custodian or broker readily-marketable securities having a fair market value (including any margin) at least equal to the market value of such contract. When writing a call option on a futures contract, a Fund similarly will maintain with its custodian or broker readily-marketable securities having a fair market value (including any margin) at least equal to the amount by which such option is in-the-money until the option expires or is closed out by the Fund. A Fund may not maintain open short positions in futures contracts, call options written on futures contracts, or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent a Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. 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. - ------------- /2/ A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. 20 SWAP AGREEMENTS, CAPS, FLOORS AND COLLARS. A swap agreement is generally individually negotiated and structured to include exposure to one or more of a variety of different types of investments or market factors. Depending on its structure, a swap agreement may increase or decrease a Fund's exposure to changes in the value of an index of securities in which the Fund might invest, the value of a particular security or group of securities, or foreign currency values. Swap agreements can take many different forms and are known by a variety of names. A Fund may enter into any form of swap agreement if the Adviser determines it is consistent with that Fund's investment objective and policies, but each Fund (excluding the Portfolio Funds) will limit its use of swap agreements so that no more than 5% of its total assets will be invested in such agreements. A swap agreement tends to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agrees to exchange payments in dollars at a fixed rate for payments in a foreign currency the amount of which is determined by movements of a foreign securities index, the swap agreement would tend to increase that Fund's exposure to foreign stock market movements and foreign currencies. Depending on how it is used, a swap agreement may increase or decrease the overall volatility of a Fund's investments and its NAV. The performance of a swap agreement is determined by the change in the specific currency, market index, security, or other factors that determine the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, 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 Adviser expects to be able to eliminate a Fund's exposure under any swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. Some Portfolio Funds may purchase caps, floors and collars. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling the cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and floor that preserves a certain return within a predetermined range of interest rates or values. A Fund will segregate assets to cover its current obligations under a swap agreement, cap, floor or collar. If a Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of 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 21 amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. The Funds will incur transaction costs in connection with short sales. In addition to enabling the Funds to hedge against market risk, 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 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 and some Portfolio Funds may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ("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 Adviser 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. COLUMBIA THERMOSTAT FUND may invest up to 100% of its total assets in Portfolio Funds that invest in debt securities at times, including lower-rated securities, and securities that are not rated. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, the junk bond market may be severely disrupted, and issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. A more complete description of the characteristics of bonds in each ratings category is included in Appendix I to this SAI. ILLIQUID AND RESTRICTED SECURITIES The Funds (excluding the Portfolio Funds) may not invest in illiquid securities, if as a result they would comprise more than 15% of the value of the net assets of the Fund. The limit on illiquid securities for each Portfolio Fund is 15%, except that the limit is 10% for Columbia High-Yield 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. 22 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, LIBERTY ACORN USA nor COLUMBIA THERMOSTAT FUND will invest more than 10% of its total assets (valued at the time of investment) in restricted securities. Notwithstanding the above, a Fund may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Adviser, under the supervision of the board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to 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, LIBERTY ACORN FOREIGN FORTY and COLUMBIA THERMOSTAT FUND 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 Adviser will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the Adviser could consider 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 Adviser believes present minimal credit risks in accordance with guidelines approved by the board of Trustees. The Adviser will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, the Adviser's prior dealings with the institution, any rating of the institution's senior long-term debt by independent rating agencies, and other relevant factors. A Fund will invest 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 or Portfolio Fund could suffer a loss. However, with respect to financial institutions whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply with provisions under such Code that would allow it immediately to resell such collateral. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS The Funds and Portfolio Funds may purchase securities on a when-issued or delayed delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before the settlement date if the Adviser deems it advisable for investment reasons. A Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed delivery basis. A Fund may enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them 23 at an agreed-upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because it avoids certain market risks and transaction costs. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement, assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a Fund, may increase NAV fluctuation. The Funds have no present intention of investing in reverse repurchase agreements. ZERO COUPON SECURITIES Some of the Portfolio Funds may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Portfolio Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions. STEP COUPON BONDS Some of the Portfolio Funds may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities. TENDER OPTION BONDS Some of the Portfolio Funds may invest in tender option bonds. A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Portfolio Fund's advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons. PAY-IN-KIND (PIK) SECURITIES Some Portfolio Funds may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities. MONEY MARKET INSTRUMENTS Some Portfolio Funds may invest in money market instruments. GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSITS are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement which some Portfolio Funds would be allowed to invest in directly. SECURITIES LOANS The Funds may make secured loans of their portfolio securities amounting to not more than the percentage of their total assets specified in "Investment Policies," thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements 24 requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved. MORTGAGE DOLLAR ROLLS Some Portfolio Funds may invest in mortgage dollar rolls. In a mortgage dollar roll, the Portfolio Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Portfolio Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Portfolio Fund from the transaction. Mortgage-Backed Securities Some of the Portfolio Funds may invest in mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs). Mortgage-backed securities evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Portfolio Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Portfolio Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium. NON-AGENCY MORTGAGE-BACKED SECURITIES A Portfolio Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, a Portfolio Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy, and the Portfolio Fund may incur a loss. Asset-Backed Securities Some Portfolio Funds may invest in asset-backed securities. Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Portfolio Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility. MUNICIPAL LEASE OBLIGATIONS Some of the Portfolio Funds may invest in municipal lease obligations. Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear. 25 Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer. PARTICIPATION INTERESTS Some Portfolio Funds may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. Some Portfolio Funds may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Portfolio Fund in connection with the arrangement. The Portfolio Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax. STAND-BY COMMITMENTS When a Portfolio Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Portfolio Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Portfolio Fund, although it could sell the underlying municipal obligation to a third party at any time. Some Portfolio Funds expect that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Portfolio Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the fund portfolio will not exceed 10% of the value of the fund's total assets calculated immediately after each stand-by commitment is acquired. The Portfolio Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks. INVERSE FLOATERS Some Portfolio Funds may invest in inverse floaters. Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters. Floating or Variable Rate Securities Some of the Portfolio Funds may invest in floating or variable rate securities. Floating or variable rate securities have interest rates that periodically change according to the rise and fall of a specified interest rate index or a specific fixed-income security that is used as a benchmark. The interest rate typically changes every six months, but for some securities the rate may fluctuate weekly, monthly, or quarterly. The index used is often the rate for 90- or 180-day Treasury Bills. Variable-rate and floating-rate securities may have interest rate ceilings or caps that fix the interest rate on such a security if, for example, a specified index exceeds a predetermined interest rate. If an interest rate on a security held by the Portfolio Fund becomes fixed as a result of a ceiling or cap provision, the interest income received by the Fund will be limited by the rate of the ceiling or cap. In addition, the principal values of these types of securities will be adversely affected if market interest rates continue to exceed the ceiling or cap rate. 26 Real Estate Investment Trusts ("REITs") Some Portfolio Funds may invest in REITs. REITs are pooled investment vehicles that invest primarily in real estate -- such as shopping centers, malls, multi-family housing, or commercial property, or real-estate related loans such as mortgages. Investing in REITs involves unique risks and may be affected by changes in the value of the underlying property owned by the REIT or affected by the quality of the credit extended. REITs are significantly affected by the market for real estate and are subject to many of the same risks associated with direct ownership in real estate. Furthermore, REITs are dependent upon management skills and subject to heavy cash flow dependency. Convertible Securities and Warrants Some Portfolio Funds may purchase convertible securities and warrants. Convertible debentures are interest-bearing debt securities, typically unsecured, that represent an obligation of the corporation providing the owner with claims to the corporation's earnings and assets before common and preferred stock owners, generally on par with unsecured creditors. If unsecured, claims of convertible debenture owners would be inferior to claims of secured debt holders. Convertible preferred stocks are securities that represent an ownership interest in a corporation providing the owner with claims to the corporation's earnings and assets before common stock owners, but after bond owners. Investments by a Portfolio Fund in convertible debentures or convertible preferred stock would be a substitute for an investment in the underlying common stock, primarily either in circumstances where only the convertible security is available in quantities necessary to satisfy the Portfolio Fund's investment needs (for example, in the case of a new issuance of convertible securities) or where, because of financial market conditions, the conversion price of the convertible security is comparable to the price of the underlying common stock, in which case a preferred position with respect to the corporation's earnings and assets may be preferable to holding common stock. Warrants are options to buy a stated number of underlying securities at a specified price any time during the life of the warrants. The securities underlying these warrants will be the same types of securities that a Portfolio Fund will invest in to achieve its investment objective of capital appreciation. The purchaser of a warrant expects the market price of the underlying security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus resulting in a profit. If the market price never exceeds the purchase price plus the exercise price of the warrant before the expiration date of the warrant, the purchaser will suffer a loss equal to the purchase price of the warrant. To the extent the Portfolio Fund known as Columbia High Yield Fund acquires common stock through exercise of conversion rights or warrants or acceptance of exchange or similar offers, the common stock will not be retained in the portfolio. Orderly disposition of these equity securities will be made consistent with management's judgment as to the best obtainable price. SENIOR LOANS Senior Loans generally are arranged through private negotiations between a borrower and the lenders represented in each case by one or more agents of the several lenders. Senior Loans in which some Portfolio Funds may purchase interests generally pay interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally Prime Rate, LIBOR, the CD rate or other base lending rates used by commercial lenders. The Senior Loans in the Portfolio Funds' investment portfolios will at all times have a dollar-weighted average time until next interest rate redetermination of 180 days or less. Because of prepayment provisions, the actual remaining maturity of Senior Loans may vary substantially from the stated maturity of such loans. STRUCTURED NOTES Some Portfolio Funds may invest in structured notes, including "total rate of return swaps" with rates of return determined by reference to the total rate of return on one or more loans referenced in such notes. The rate of return on the structured note may be determined by applying a multiplier to the rate of total return on the referenced loan or loans. Application of a multiplier is comparable to the use of financial leverage, which is a speculative technique. Leverage magnifies the potential for gain and the risk of loss, because a relatively small decline in the value of a referenced note could result in a relatively large loss in the value of a structured note. Structured notes are treated as Senior Loans. TEMPORARY STRATEGIES The Funds have the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the Adviser may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of domestic issuers (or, in the case of LIBERTY ACORN FUND, LIBERTY ACORN INTERNATIONAL, LIBERTY ACORN FOREIGN FORTY and COLUMBIA THERMOSTAT FUND, those of foreign issuers), and most or all of the Fund's investments may be made in the United 27 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, LIBERTY ACORN TWENTY and COLUMBIA THERMOSTAT FUND is generally eligible for the dividends-received deduction. Capital gain distributions paid from the Funds are never eligible for this deduction. FUND DISTRIBUTIONS. Distributions from a Fund 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. All income and capital gains received by COLUMBIA THERMOSTAT FUND from a Portfolio Fund that it owns will be distributed by the Fund (after deductions from the Fund's allowable losses and expenses) and will be taxable to shareholders as described above. Because COLUMBIA THERMOSTAT FUND is actively managed, it may realize taxable net short-term capital gains by selling shares of a Portfolio Fund it owns with unrealized appreciation or capital losses which might be disallowed under wash sale rules or recharacterized. Accordingly, investing in COLUMBIA THERMOSTAT FUND rather than directly investing in the Portfolio Funds may result in increased tax liability to a shareholder since the Fund must distribute its net realized gains in accordance with those rules. Distributions will be taxed as described above whether received in cash or in Fund shares. Dividends and distributions on the 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 28 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 30% 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 Adviser 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, shares of regulated investment companies, and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any issuer (other than U.S. Government securities) 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. 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. 29 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 purchase of put options (or futures put options) that are intended to hedge against a change in the value of securities held by a Fund may affect the holding period of the hedged securities. If a Fund were to enter into a short index future, short index futures option or short index option position and the Fund's portfolio were deemed to "mimic" the performance of the index underlying such contract, the option or futures contract position and the Fund's stock positions may be deemed to be positions in a mixed straddle, subject to the above-mentioned loss deferral rules. The Internal Revenue Code imposes constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales or "offsetting notional principal contracts" (as defined by the Code) with respect to, or futures or "forward contracts" (as defined by the Code) with respect to, the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. The Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales, offsetting notional principal contracts, and futures or forward contracts to deliver the same or substantially similar property. In order for the Funds to continue to qualify for federal income tax treatment as regulated investment companies, at least 90% of 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. - ----------------- /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). 30 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 Adviser will consider the value of the benefit to a typical shareholder, the cost to a Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit 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, LIBERTY ACORN TWENTY and COLUMBIA THERMOSTAT FUND do not expect to be able to "pass through" foreign tax credits. Investment by a Fund in certain "passive foreign investment companies" could subject the Fund to a U.S. federal income tax (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. MANAGEMENT OF THE TRUST Each of the Adviser, LFS and LFD is an indirect wholly owned subsidiary of Liberty Funds Group LLC ("LFG"), which in turn is a wholly owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly owned subsidiary of Fleet National Bank, which in turn is a wholly owned subsidiary of Fleet Boston Financial Corporation. Each of Fleet Boston Financial Corporation, Fleet National Bank, Columbia Management Group, Inc. and LFG are located at 100 Federal Street, Boston, MA 02110. TRUSTEES AND OFFICERS. The Board of Trustees has overall management responsibility for the Funds. The Board of Trustees serve indefinite terms of unlimited duration provided that a majority of Trustees always has been elected by shareholders. The Trustees appoint their own successors, provided that at least two-thirds of the Trustees, after such appointment, have been elected by shareholders. Shareholders may remove a Trustee, with or without cause, upon the vote of two-thirds of Acorn's 31 outstanding shares at any meeting called for that purpose. A Trustee may be removed with or without cause upon the vote of a majority of the Trustees. With respect to COLUMBIA THERMOSTAT FUND, certain of the officers and Trustees of the Trust also serve as officers and Trustees of the Underlying Trusts. In addition, the Adviser serves as investment adviser to certain of the Portfolio Funds. Conflicts may arise as these persons seek to fulfill their fiduciary responsibilities at both levels. The names of the Trustees and officers of Liberty Acorn, the date each was first elected or appointed to office, their principal business occupations and other directorships they have held during at least the last five years, are shown below. Each Trustee serves in such capacity for each of the six series of Liberty Acorn. Mr. Wanger also serves as a Trustee for each of the four series of the Wanger Advisors Trust.
NUMBER OF NAME, POSITION(S) YEAR FIRST PORTFOLIOS IN WITH LIBERTY ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FUND COMPLEX AND AGE AT APPOINTED DURING OVERSEEN OTHER JANUARY 1, 2002 TO OFFICE PAST FIVE YEARS BY TRUSTEE DIRECTORSHIPS --------------- --------- --------------- ---------- ------------- TRUSTEES WHO ARE NOT INTERESTED PERSONS OF LIBERTY ACORN: Margaret Eisen, 48, 2002 Managing director, DeGuardiola 6 Chair, Institute for Trustee Advisors; formerly managing Financial Markets; director, director, North American Global Financial Group Equities at General Motors Asset (venture capital fund of funds). Management; prior thereto, director of Worldwide Pension Investments for DuPont Asset Management. Leo A. Guthart, 65, 1994 Executive vice president, 6 AptarGroup, Inc. Trustee Honeywell International (home (producer of dispensing and building control); Chairman, valves, pumps and Cylink Corporation (supplier of closures); Symbol encryption equipment); former Technologies, Inc. chairman of the board of (manufacturer of bar code trustees, Hofstra University; scanning equipment) chairman and chief executive officer, Topspin Partners, L.P. Irving B. Harris, 91, 1970 Chairman, The Irving Harris 6 None. Trustee Foundation (charitable foundation). Jerome Kahn, Jr., 67, 1987 Former president, William Harris 6 None. Trustee Investors, Inc. (investment adviser). Steven N. Kaplan, 43, 1999 Neubauer Family Professor of 6 None. Trustee Entrepreneurship and Finance, Graduate School of Business, University of Chicago. David C. Kleinman, 66, 1972 Adjunct professor of strategic 6 Sonic Foundry, Inc. Trustee management, University of (software); AT&T Latin Chicago Graduate School of America. Business; Business consultant. Allan B. Muchin, 66, 1998 Partner, Katten Muchin Zavis 6 Alberto-Culver Company Trustee Rosenman (law firm). (toiletries).
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NUMBER OF NAME, POSITION(S) YEAR FIRST PORTFOLIOS IN WITH LIBERTY ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FUND COMPLEX AND AGE AT APPOINTED DURING OVERSEEN OTHER JANUARY 1, 2002 TO OFFICE PAST FIVE YEARS BY TRUSTEE DIRECTORSHIPS --------------- --------- --------------- ---------- ------------- Robert E. Nason, 66, 1998 Consultant and private investor 6 None. Trustee and 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. John A. Wing, 66, 2002 Frank Wakely Gunsaulus Professor 6 AmerUs Life Holdings Trustee of Law and Finance, and chairman (life insurance); of the Center for the Study of Law and LDF, Inc. and Labe Federal Financial Markets, Illinois Institute of Bank (banking); Margo Technology; prior thereto, chairman of Caribe, Inc. (farming). the board and chief executive officer of ABN-AMRO Incorporated, formerly The Chicago Corporation, and chief executive officer of Market Liquidity Network. TRUSTEES WHO ARE INTERESTED PERSONS OF LIBERTY ACORN: Charles P. McQuaid, 48 1994 Portfolio manager since 1995 and 6 None. Trustee and Senior director of domestic research since Vice President (1) July 1992 of Liberty WAM; Principal, WAM from July 1995 to September 29, 2000; senior vice president, Wanger Advisors Trust. Ralph Wanger, 67, 1994 President, Chief Investment 10 Wanger Advisors Trust (4 Trustee and Officer and portfolio manager, portfolios). President* (1) Liberty WAM since 1992; principal, WAM from July 1992 until September 29, 2000; president, WAM Ltd. from July 1992 to September 29, 2000; president and director, WAM Acquisition GP, Inc. since September 29, 2000; president, Wanger Advisors Trust; director, Wanger Investment Company plc.
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NUMBER OF PORTFOLIOS IN NAME, POSITION(S) YEAR FIRST FUND COMPLEX WITH LIBERTY ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FOR WHICH AND AGE AT APPOINTED DURING OFFICER ACTS IN OTHER JANUARY 1, 2002 TO OFFICE PAST FIVE YEARS SAME CAPACITY DIRECTORSHIPS --------------- --------- --------------- --------------- ------------- OFFICERS OF LIBERTY ACORN: J. Kevin 2001 Treasurer of the Liberty Funds 10 None. Connaughton, 37, and of the Liberty All-Star Assistant Treasurer Funds since December 2000 (formerly chief accounting officer and 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); senior vice president of Liberty Funds Group since January 2001 (formerly vice president of Colonial Management Associates from February 1998 to October 2000); Senior Tax Manager, Coopers & Lybrand, LLP from April 1996 to January 1998. Kevin S. Jacobs, 40, 2001 Assistant vice president, 10 None. Assistant Secretary Liberty Funds Group since June 2000; senior legal product manager, First Union Corp. September 1999 to June 2000; prior thereto, senior legal product manager, Colonial Management Associates. Kenneth A. Kalina, 42, 1995 Chief financial officer, Liberty 10 None. Assistant Treasurer WAM since April 2000; assistant treasurer, Wanger Advisors Trust; fund controller, Liberty WAM since September 1995; prior thereto, treasurer of the Stein Roe Mutual Funds; director, New Americas Small Cap Fund. Bruce H. Lauer, 44, 1995 Chief operating officer, Liberty 10 None. Vice President, WAM since April 1995; principal, Secretary and WAM from January 2000 to Treasurer September 29, 2000; vice president, treasurer and assistant secretary, Wanger Advisors Trust; director, Wanger Investment Company plc and New Americas Small Cap Fund. Jean Loewenberg, 56, 2002 Assistant General Counsel, Fleet 10 None. Assistant Secretary National Bank. Robert A. Mohn, 40, 1997 Analyst and portfolio manager, 10 None. Vice President Liberty WAM since August 1992; principal, WAM from 1995 to September 29, 2000; vice president, Wanger Advisors Trust.
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NUMBER OF PORTFOLIOS IN NAME, POSITION(S) YEAR FIRST FUND COMPLEX WITH LIBERTY ACORN ELECTED OR PRINCIPAL OCCUPATION(S) FOR WHICH AND AGE AT APPOINTED DURING OFFICER ACTS IN OTHER JANUARY 1, 2002 TO OFFICE PAST FIVE YEARS SAME CAPACITY DIRECTORSHIPS --------------- --------- --------------- --------------- ------------- Todd Narter, 37, 2001 Analyst and portfolio manager, 10 None. Vice President Liberty WAM since June 1997; vice president, Wanger Advisors Trust; prior thereto, product manager for Teradyne (1990-1997). Christopher Olson, 38, 2001 Analyst and portfolio manager, 10 None. Vice President Liberty WAM since January 2001; vice president, Wanger Advisors Trust; prior thereto, director and portfolio strategy analyst with UBS Asset Management/Brinson Partners. John H. Park, 34, 1998 Analyst and portfolio manager, 10 None. Vice President Liberty WAM since July 1993; principal, WAM from 1998 to September 29, 2000; vice president, Wanger Advisors Trust. Vincent P. 2001 Vice president and Counsel, 10 None. Pietropaolo, 36, Liberty Funds Group since Assistant Secretary December 1999; Associate, Morgan Lewis & Bockius, October 1998 to December 1999; product manager, Putnam Investments April 1997 to October 1998. Joseph Turo, 34, 2002 Senior Counsel, FleetBoston 10 None. Assistant Secretary Financial since August 1997; prior thereto, Associate, Ropes & Gray. Leah J. Zell, 52, 1994 Analyst, and portfolio manager, 10 None. Vice President* Liberty WAM since July 1992; vice president, Wanger Advisors Trust; director and managing member of trust committee, Chai Trust Company.
35 * Mr. Wanger and Ms. Zell are married to each other. (1) Trustee who is an "interested person" of the Trust and of Liberty WAM, as defined in the Investment Company Act of 1940, because he is an officer of the Trust and an employee of Liberty WAM. The address for Mr. Wanger, Mr. McQuaid, Mr. Narter, Mr. Olson, 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 Three Expressway Plaza, Suite 100, Roslyn Heights, New York 11577. The address for Mr. Muchin is Katten Muchin Zavis Rosenman, 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 Ms. Eisen is De Guardiola Advisors, Inc., 405 Park Avenue, Suite 1201, New York, New York 10022. The address for Mr. Wing is Illinois Institute of Technology, 565 West Adams Street, Suite 320-B, Chicago, IL 60661-3091. The address for Mr. Connaughton, Mr. Jacobs, Mr. Pietropaolo, Ms. Loewenberg, and Mr. Turo is Liberty Funds Group LLC, One Financial Center, Boston, MA 02111. During 2001 the Funds paid fees aggregating $555,250 to board members who were not affiliated with the Adviser. 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, 2001 to each of the Trustees of the Trust:
AGGREGATE COMPENSATION FROM ------------------------------------------------------------------------------------------------------------ AGGREGATE LIBERTY LIBERTY LIBERTY LIBERTY ACORN COLUMBIA COMPENSATION LIBERTY ACORN ACORN ACORN FOREIGN THERMOSTAT FROM FUND NAME OF TRUSTEE ACORN FUND INTERNATIONAL USA TWENTY FORTY FUND COMPLEX - ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES WHO ARE NOT INTERESTED PERSONS OF ACORN: Robert E. Nason $54,496.18 $26,034.54 $3,228.92 $1,063.56 $1,176.80 $0 $86,000.00 Margaret Eisen+ $0 $0 $0 $0 $0 $0 $0 Leo A. Guthart $30,764.56 $15,825.60 $1,777.01 $589.05 $793.78 $0 $49,750.00 Irving B. Harris $83,006.82 $45,172.90 $6,869.98 $1,507.05 $2,193.25 $0 $138,750.00 Jerome Kahn, Jr. $33,655.82 $17,193.65 $2,472.23 $821.55 $856.75 $0 $55,000.00 Steven N. Kaplan $32,868.80 $17,245.28 $1,908.68 $627.97 $849.27 $0 $53,500.00 David C. Kleinman $35,713.23 $19,100.70 $2,085.32 $680.04 $920.71 $0 $58,500.00 Roger S. Meier* $32,645.07 $17,484.53 $1,907.31 $621.83 $841.26 $0 $53,500.00 Allan B. Muchin $29,438.10 $16,007.61 $1,716.97 $560.91 $776.41 $0 $48,500.00 Katherine Schipper** $6,815.00 $4,194.74 $376.00 $129.26 $235.00 $0 $11,750.00 John A. Wing+ $0 $0 $0 $0 $0 $0 $0 TRUSTEES WHO ARE INTERESTED PERSONS OF ACORN: Charles P. McQuaid $0 $0 $0 $0 $0 $0 $0 Ralph Wanger $0 $0 $0 $0 $0 $0 $0
* Mr. Meier retired as a Trustee as of December 31, 2001. ** Ms. Schipper resigned as a Trustee as of March 31, 2001. + Mr. Wing and Ms. Eisen were elected as Trustees as of May 21, 2002. The officers and Trustees affiliated with the Adviser 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. 36 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 Trust's board of Trustees are:
No. of Meetings Committee Members Function Held in 2001 - --------- ------- -------- --------------- Executive Irving B. Harris Exercise powers of the Board of Trustees during Ralph Wanger intervals between meetings of the board, with Robert E. Nason certain exceptions. 0 Charles P. McQuaid (alternate) Audit David C. Kleinman Make recommendations to the Board of Trustees (chairman) regarding the selection of independent auditors Robert E. Nason for the Trust, confer with the independent 2 Jerome Kahn, Jr. auditors regarding the scope and results of each audit and carry out the provisions of its charter. Valuation Ralph Wanger Determine valuations of portfolio securities held (chairman) by any series of the Trust in instances as Irving B. Harris required by the valuation procedures adopted by 16 Charles P. McQuaid the Board of Trustees. Robert E. Nason (alternate) Jerome Kahn, Jr. (alternate) Investment Advisory Allan B. Muchin Make recommendations to the Board of Trustees Agreement (chairman) regarding the continuation or amendment of the Margaret Eisen investment advisory agreements between the Trust 1 Leo A. Guthart and the Adviser. Jerome Kahn, Jr. David C. Kleinman
37
No. of Meetings Committee Members Function Held in 2001 - --------- ------- -------- --------------- Governance Allan B. Muchin Make recommendations to the board regarding (chairman) committees of the board and committee assignments, Irving B. Harris make recommendations to the board regarding the 1 Steven N. Kaplan composition of the board and candidates for Robert E. Nason election as non-interested Trustees, oversee the process for evaluating the functioning of the board, and make recommendations to the board regarding the compensation of Trustees who are not affiliated with any investment adviser, administrator or distributor of the Funds. The Governance Committee will not consider shareholder recommendations regarding candidates for election as Trustees; however, such recommendations may be made in the form of a shareholder proposal to be presented at any future meeting of shareholders of the Funds. Investment Performance David C. Kleinman Examine methods of mutual fund performance Analysis (chairman) measurement and make recommendations to the Board Steven N. Kaplan of Trustees about the types of performance reports 0 Ralph Wanger to be provided to the board. John A. Wing
INVESTMENT ADVISER Liberty Wanger Asset Management, L.P. ("Liberty WAM") (formerly named Wanger Asset Management, L.P. prior to September 29, 2000 ("WAM")), serves as the investment advisor for the Funds and for other institutional accounts. As of December 31, 2001, Liberty WAM had approximately $8.7 billion under management, including the Funds. Liberty WAM and its predecessor have managed mutual funds, including Liberty Acorn since 1992. Liberty WAM is an indirect wholly owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly owned subsidiary of Fleet National Bank, which in turn is a wholly owned subsidiary of FleetBoston Financial Corporation. The Portfolio Funds are managed by Liberty WAM and its affiliates, Colonial Management Associates, Inc. ("Colonial"), Columbia Funds Management Company ("Columbia") and Stein Roe & Farnham Incorporated ("Stein Roe"). Colonial has been an investment advisor since 1931, and is located at One Financial Center, Boston, Massachusetts 02111. Columbia has been an investment advisor since 1967, and is located at 1301 SW Fifth Avenue, P.O. Box 1350, Portland, Oregon 97207. Stein Roe has been an investment advisor since 1932, and is located at One South Wacker Drive, Chicago, Illinois 60606. The mutual fund and institutional investment advisory business of Liberty WAM, Colonial, Columbia and Stein Roe are part of a larger business unit known as Columbia Asset Management that includes several separate legal entities that are managed by a single management team. Except for COLUMBIA THERMOSTAT FUND, each Fund's Advisory Agreement automatically terminated on November 1, 2001 when Fleet acquired the asset management business of LFC. At a meeting of the Board of Trustees held on August 15, 2001, called in part for the purpose of voting on the approval of new Advisory Agreements with Liberty WAM that were substantially identical to the previous Advisory Agreements, the new Advisory Agreements were approved through July 31, 2003 by the unanimous vote of the "non-interested" Trustees of the Trust voting separately. The Trustees considered information about, among other things: (1) Liberty WAM and its respective personnel, resources and investment process; (2) the terms of the new Advisory Agreements; (3) the nature and quality of services provided by Liberty WAM; (4) the investment performance of each Fund and of similar funds managed by other advisors; (5) the profitability to Liberty WAM of its relationship with the Funds; (6) fall-out benefits from that relationship; (7) compensation payable by the Funds to affiliates of the Adviser for other services; (8) economies of scale; and (9) comparative fees and expense ratios. The Trustees also considered the terms of an agreement between the Trust and Fleet National Bank (the "Fleet Agreement") in which Fleet agreed that during the initial term of the new Advisory Agreements, except as otherwise authorized by the Trustees, it would: (1) preserve the autonomy of the Trust; (2) preserve the independence of Liberty WAM, including its investment philosophy and approach to investment operations, research and talent; (3) allow Liberty WAM considerable latitude to recruit and compensate (on competitive terms) investment management personnel; (4) not interfere with Liberty WAM's relationships with regional brokers unless regulatory or compliance concerns dictate and permit Liberty WAM to continue to allocate the commissions and soft dollar payments as it has in the past; (5) maintain the trading desk 38 at Liberty WAM for domestic and international trading activities; and (6) not add to the current management responsibilities of any portfolio manager of a Fund the responsibility to manage additional funds from the Fleet organization without the consent of the Trustees. In addition, the Trustees considered matters relating to the possible effects on Liberty WAM and the Funds of the acquisition of the asset management business of LFC by Fleet, including: (1) the terms of the Fleet Agreement; (2) certain actions taken by LFC and Liberty WAM to help retain and incent their key personnel; (3) the general reputation, financial resources and business activities of Fleet and its parent organization; (4) the potential benefits of scale from combining the asset management businesses of Fleet and LFC, including the ability to attract and retain key personnel and enhance technology and customer service; (5) the stated intention of Fleet to consult with the Board of the Funds prior to removing or reducing any voluntary fee waivers or expense limitations; and (6) the stated intention of Fleet to provide investment professionals of Liberty WAM with access to greater resources as a result of the acquisition. Finally, the Trustees considered Fleet's agreement to use all reasonable efforts to assure compliance with Section 15(f) of the 1940 Act. Section 15(f) provides that a mutual fund investment advisor or its affiliates may receive benefits or compensation in connection with a change of control of the investment advisor if two conditions are satisfied. First, for three years after the change of control, at least 75% of the members of the board of any registered investment company advised by the advisor must consist of persons who are not "interested persons," as defined in the 1940 Act, of the advisor. Second, no "unfair burden" may be imposed on any such registered investment company as a result of the change of control transaction or any express or implied terms, conditions or understandings applicable to the transaction. "Unfair burden" means any arrangement, during the two years after the transaction, by which the investment advisor or any "interested person" of the advisor receives or is entitled to receive any compensation, directly or indirectly, from such investment company or its security holders (other than fees for bona fide investment advisory or other services) or from any other person in connection with the purchase or sale of securities or other property to, from or on behalf of such investment company. [At a meeting of the Board of Trustees held on September 24, 2002, called in part for the purpose of voting on the approval of the Advisory Agreement with Liberty WAM with respect to COLUMBIA THERMOSTAT FUND, the Advisory Agreement was approved through July 31, 2003 by the unanimous vote of the "non-interested" Trustees of the Trust voting separately. The Trustees considered information about, among other things: (1) Liberty WAM and its respective personnel, resources and investment process; (2) the terms of the Advisory Agreement; (3) the nature and quality of services provided by Liberty WAM; (4) the profitability to Liberty WAM of its relationship with the Funds; (5) fall-out benefits from that relationship; (6) compensation payable by the Funds to affiliates of the Adviser for other services; (7) economics of scale; and (8) comparative fees and expense ratios.] Each Advisory Agreement will continue from year to year thereafter so long as such continuation is approved at least annually by (1) the Board of Trustees or the vote of a majority of the outstanding voting securities of the Fund or Portfolio Fund, and (2) a majority of the Trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Advisory Agreement may be terminated at any time, without penalty, by either the Trust or Liberty WAM upon 60 days' written notice, and automatically terminates in the event of its assignment as defined in the 1940 Act. The shareholders of each Fund (other than COLUMBIA THERMOSTAT FUND) approved the new Advisory Agreements with Liberty WAM at a shareholders meeting held on October 24, 2001. Under its Advisory Agreement with the Funds, the Adviser provides the Fund with discretionary investment services. Specifically, the Adviser is responsible for supervising and directing the investments of the Fund in accordance with the Fund's investment objective, program, and restrictions as provided in the Funds' prospectuses and this SAI. The Adviser is also responsible for effecting all security transactions on behalf of the 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 Adviser of the fee described in the Prospectuses. Under the Administration Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which such Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard of its obligations and duties under the Agreement. 39 The advisory fees paid to the Adviser by each Fund for the fiscal years ended December 31, 2001, 2000 and 1999 were as follows:
FUND 2001 2000 1999 Liberty Acorn Fund $29,187,000 $26,750,000 $23,437,000 Liberty Acorn International $16,504,000 $23,515,000 $15,669,000 Liberty Acorn USA $2,382,000 $2,844,000 $2,806,000 Liberty Acorn Twenty gross advisory fee: $748,000 $585,000 $504,000 exp. reimb: (53,000) ( 0 ) (24,000) ------------------------------- ------- -------- net advisory fee: $695,000 $585,000 $480,000 Liberty Acorn Foreign Forty gross advisory fee: $877,000 $1,334,000 $427,000 exp. reimb: (36,000) ( 0 ) (43,000) ------------------------------- -------- -------- net advisory fee: $841,000 $1,334,000 $384,000 Columbia Thermostat Fund $0 $0 $0
Liberty WAM receives advisory fees from some of the Portfolio Funds in which COLUMBIA THERMOSTAT FUND invests. The administrative fees paid to the Adviser by each Fund for the fiscal years ended December 31, 2001, 2000 and 1999, were as follows:
FUND 2001 2000 1999 Liberty Acorn Fund $2,141,000 $1,958,000 $1,699,000 Liberty Acorn International $1,017,000 $1,484,000 $962,000 Liberty Acorn USA $127,000 $152,000 $151,000 Liberty Acorn Twenty $42,000 $33,000 $28,000 Liberty Acorn Foreign Forty $46,000 $70,000 $23,000 Columbia Thermostat Fund $0 $0 $0
PORTFOLIO TRANSACTIONS The Adviser places the orders for the purchase and sale of the Funds' portfolio securities and options and futures contracts. The Adviser'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 Adviser'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 Adviser's knowledge of the financial stability of the broker or dealer selected and such other brokers or dealers; and the Adviser'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 Adviser's staff while effecting portfolio transactions. The general level of brokerage commissions paid is reviewed by the Adviser, and reports are made annually to the board of Trustees of the Funds. 40 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 Adviser 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 Adviser 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, to such brokers or dealers to ensure the continued receipt of research products or services that the Adviser feels are useful. In certain instances, the Adviser 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 Adviser 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 Adviser (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 Adviser 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 Adviser 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 Adviser may also consider the part, if any, played by the broker or dealer in bringing the security involved to the Adviser'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. The Adviser may place trades for the Funds through Quick & Reilly, Inc., Robertson Stephens, Inc. or Fleet Securities, Inc., each affiliates of the Adviser, pursuant to procedures adopted by the Board of Trustees. The Funds will pay these affiliates a commission for these transactions. The Funds have adopted procedures consistent with Investment Company Act Rule 17e-1 governing such transactions. BROKERAGE COMMISSIONS (dollars in thousands)
Year ended December 31, 2001 ---------------------------- Liberty Liberty Acorn Liberty Liberty Liberty Acorn Liberty Acorn Foreign Acorn Acorn Fund International Acorn USA Twenty Forty Thermostat ---------- ------------- --------- ------ ----- ---------- Total commissions $3,147 $4,302 $190 $186 $459 $0 Directed transactions 687,718 285,585 63,497 98,100 48,760 0 Commissions on directed 1,569 729 127 134 135 0 transactions
Year ended December 31, 2000 ---------------------------- Liberty Liberty Acorn Liberty Liberty Acorn Liberty Acorn Foreign Acorn Fund International Acorn USA Twenty Forty ---------- ------------- --------- ------ ----- Total commissions $3,136 $8,586 $366 $193 $569 Directed transactions * * * * * Commissions on directed 1,804 994 297 139 72 transactions
(*) Rounds to less than one. 41
Year ended December 31, 1999 ---------------------------- Liberty Liberty Acorn Liberty Liberty Acorn Liberty Acorn Foreign Acorn Fund International Acorn USA Twenty Forty ---------- ------------- --------- ------- ------- Total commissions $3,938 $4,457 $269 $151 $254
ADMINISTRATION AGREEMENT Liberty Acorn has a separate administration agreement with the Adviser under which the Adviser 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 Adviser 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 Adviser 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 Adviser has the power under the Administration Agreement to delegate some or all of its responsibilities to others, at the Adviser's expense. The Adviser retains responsibility for any services it delegates. The Adviser has delegated some or all of the services provided pursuant to the Administration Agreement to affiliates of Liberty Funds Group LLC. PRINCIPAL UNDERWRITER LFD is the principal underwriter of the Funds' 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, 2001 ---------------------------- Liberty Liberty Liberty Acorn Liberty Acorn Liberty Acorn Liberty Acorn Foreign Acorn Fund International Acorn USA Twenty Forty Thermostat ---- ------------- --------- ------ ----- ---------- Aggregate initial sales charges on Fund share sales $4,274 $214 $402 $177 $26 $0 Initial sales charges retained by LFD $443 $15 $28 $8 $1 $0 Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by LFD $1 $17 $* $* $4 $0
Class B Shares Year ended December 31, 2001 ---------------------------- Liberty Liberty Liberty Acorn Liberty Acorn Liberty Acorn Liberty Acorn Foreign Acorn Fund International Acorn USA Twenty Forty Thermostat ---- ------------- --------- ------ ----- ---------- Aggregate CDSC on Fund redemptions retained by LFD $7 $1 $1 $* $* $0
42
Class C Shares Year ended December 31, 2001 ---------------------------- Liberty Liberty Liberty Acorn Acorn Liberty Acorn Liberty Acorn Foreign Fund International Acorn USA Twenty Forty ---- ------------- --------- ------ ----- Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0 $0 $0
Class D Shares Year ended December 31, 2001 ---------------------------- Columbia Thermostat Fund Aggregate initial sales charges on Fund share sales $0 Initial sales charges retained by LFD $0 Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by LFD $0
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 $49 $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 ---------------------------- Liberty Liberty Liberty Acorn Acorn Liberty Acorn Liberty Acorn Foreign Fund International Acorn USA Twenty Forty ---- ------------- --------- ------ ----- Aggregate CDSC on Fund redemptions retained by LFD $* $4 $0 $* $0
* Rounds to less than one. 43 The advisory fees the Funds pay to the Adviser 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% COLUMBIA THERMOSTAT FUND Rate of Fee ----------- All assets 0.10% 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. Liberty WAM has voluntarily undertaken to limit the normal operating expenses of COLUMBIA THERMOSTAT FUND (exclusive of distribution and service fees and certain other expenses) for a maximum of 0.60% of the average annual net assets by waiving fees or reimbursing expenses for Class Z, Class A, Class B and Class D 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 Adviser under which the Adviser 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, Class C and Class D 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. In addition to the fees and expenses paid by COLUMBIA THERMOSTAT FUND directly, COLUMBIA THERMOSTAT FUND pays its pro rata share of the fees and expenses of the Portfolio Funds in which it invests. Each Portfolio Fund pays investment advisory fees to its investment advisor, administrative and bookkeeping fees to its administrator, and transfer agency and shareholder servicing fees to LFS. 44 OWNERSHIP OF THE FUND At September 10, 2002, the only persons known to own of record or beneficially 5% or more of the outstanding shares of any Fund were:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND SHARES HELD ---------------- ---- ----------- CHARLES SCHWAB & CO. INC.(1) LIBERTY ACORN FUND Z 9.69% 101 MONTGOMERY STREET LIBERTY ACORN INTERNATIONAL Z 21.02% SAN FRANCISCO, CA 94104-4122 LIBERTY ACORN USA Z 14.39% LIBERTY ACORN TWENTY Z 21.43% LIBERTY ACORN FOREIGN FORTY Z 19.45% NATIONAL FINANCIAL SERVICES CORP.(1) LIBERTY ACORN FUND Z 8.35% ONE WORLD FINANCIAL CENTER LIBERTY ACORN INTERNATIONAL Z 9.35% 200 LIBERTY STREET LIBERTY ACORN TWENTY Z 8.14% NEW YORK, NY 10281-1003 LIBERTY ACORN FOREIGN FORTY Z 5.05% STATE OF ILLINOIS EMPLOYEES DEFERRED LIBERTY ACORN FUND Z 11.73% COMPENSATION PLAN(2) 200 W. WASHINGTON SPRINGFIELD, IL 62706-0001 VANGUARD FIDUCIARY TRUST CO.(1) LIBERTY ACORN USA Z 6.53% PO BOX 2600 VALLEY FORGE, PA 19482-2600 PUTNAM FIDUCIARY TRUST CO. LIBERTY ACORN USA Z 13.82% FBO CARDINAL HEALTH PROFIT SHARING RETIREMENT & SAVINGS PLAN(2) 1 INVESTORS WAY NORWOOD, MA 02062-1599 CHARLES SCHWAB & CO. INC.(1) LIBERTY ACORN FUND A 15.92% 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104-4122 CHARLES SCHWAB & CO. INC.(1) LIBERTY ACORN USA A 16.35% 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104-4122 MERRILL LYNCH PIERCE FENNER & LIBERTY ACORN FUND C 11.95% SMITH(1) 4800 DEER LAKE DR JACKSONVILLE, FL 32246-6484 MERRILL LYNCH PIERCE FENNER & LIBERTY ACORN USA C 6.42% SMITH(1) 4800 DEER LAKE DR JACKSONVILLE, FL 32246-6484 CHARLES SCHWAB & CO. INC.(1) LIBERTY ACORN TWENTY A 13.15% 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104-4122 NAPA DRIVE LLC LIBERTY ACORN FOREIGN FORTY A 14.35% 666 5TH AVE., #423 NEW YORK, NY 10101-0001 LPL FINANCIAL SERVICES(1) LIBERTY ACORN FOREIGN FORTY B 6.21% 9785 TOWNE CENTRE DR. SAN DIEGO, CA 92121-1968 MERRILL LYNCH PIERCE FENNER & LIBERTY ACORN FOREIGN FORTY B 5.22% SMITH(1) 4800 DEER LAKE DR JACKSONVILLE, FL 32246-6484 SALEM FIVE CENTS SAVINGS BANK LIBERTY ACORN FOREIGN FORTY C 5.78% 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. 45 At September 1, 2002, 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, ____% of the outstanding Class Z shares of LIBERTY ACORN USA, _____% of the outstanding Class Z shares of LIBERTY ACORN TWENTY, and ____% of the outstanding Class Z shares of LIBERTY ACORN FOREIGN FORTY. This includes shares held in the Liberty WAM profit sharing plan. As of September 1, 2002, none of the independent Trustees owns beneficially or of record any shares of Liberty WAM or LFD, or of any person directly or indirectly controlling, controlled by, or under common control with Liberty WAM or LFD. The following table shows the dollar range of equity securities "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by each Trustee as of December 31, 2001:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES OVERSEEN BY DOLLAR RANGE OF EQUITY TRUSTEE IN FAMILY OF NAME OF TRUSTEE NAME OF FUND SECURITIES IN EACH FUND INVESTMENT COMPANIES --------------- ------------ ----------------------- -------------------- TRUSTEES WHO ARE NOT INTERESTED PERSONS OF LIBERTY ACORN: ROBERT E. NASON LIBERTY ACORN FUND $10,001 - $50,000 Over $100,000 LIBERTY ACORN INTERNATIONAL $10,001 - $50,000 LIBERTY ACORN USA $10,001 - $50,000 LIBERTY ACORN TWENTY $10,001 - $50,000 LIBERTY ACORN FOREIGN FORTY $10,001 - $50,000 COLUMBIA THERMOSTAT FUND None MARGARET EISEN LIBERTY ACORN FUND None None LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA None LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None LEO A. GUTHART LIBERTY ACORN FUND None None LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA None LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None IRVING B. HARRIS LIBERTY ACORN FUND Over $100,000 Over $100,000 LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA $10,001 - $50,000 LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None JEROME KAHN, JR. LIBERTY ACORN FUND Over $100,000 Over $100,000 LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA $50,001 - $100,000 LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY Over $100,000 COLUMBIA THERMOSTAT FUND None STEVEN N. KAPLAN LIBERTY ACORN FUND None None LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA None LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None DAVID C. KLEINMAN LIBERTY ACORN FUND $10,001 - $50,000 $10,001 - $50,000 LIBERTY ACORN INTERNATIONAL $10,001 - $50,000 LIBERTY ACORN USA None LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None
46 ALLAN B. MUCHIN LIBERTY ACORN FUND Over $100,000 Over $100,000 LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA None LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None JOHN A. WING LIBERTY ACORN FUND None None LIBERTY ACORN INTERNATIONAL None LIBERTY ACORN USA None LIBERTY ACORN TWENTY None LIBERTY ACORN FOREIGN FORTY None COLUMBIA THERMOSTAT FUND None
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES OVERSEEN BY DOLLAR RANGE OF EQUITY TRUSTEE IN FAMILY OF NAME OF TRUSTEE NAME OF FUND SECURITIES IN EACH FUND INVESTMENT COMPANIES --------------- ------------ ----------------------- -------------------- TRUSTEES WHO ARE INTERESTED PERSONS OF LIBERTY ACORN: CHARLES P. MCQUAID LIBERTY ACORN FUND Over $100,000 Over $100,000 LIBERTY ACORN INTERNATIONAL Over $100,000 LIBERTY ACORN USA Over $100,000 LIBERTY ACORN TWENTY Over $100,000 LIBERTY ACORN FOREIGN FORTY Over $100,000 COLUMBIA THERMOSTAT FUND None RALPH WANGER LIBERTY ACORN FUND Over $100,000 Over $100,000 LIBERTY ACORN INTERNATIONAL Over $100,000 LIBERTY ACORN USA Over $100,000 LIBERTY ACORN TWENTY Over $100,000 LIBERTY ACORN FOREIGN FORTY Over $100,000 COLUMBIA THERMOSTAT FUND None
12B-1 PLAN, CONTINGENT DEFERRED SALES CHARGES AND CONVERSION OF SHARES Each Fund offers four classes of shares - Class Z, Class A, Class B, and Class C (for all Funds except COLUMBIA THERMOSTAT FUND) or Class D (for COLUMBIA THERMOSTAT FUND). Each Fund may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the 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 (or Class D) 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 Adviser) with respect to the Class A, B, C and D 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. 47 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 D shares are offered at net asset value plus an initial sales charge of 1% 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, 2001 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $585 $12,085 $1,574 Cost of sales material relating to the Fund (including printing and mailing expenses) 2,155 1,828 1,033 Allocated travel, entertainment and other promotional (including advertising) 1,181 998 565
LIBERTY ACORN USA
Year ended December 31, 2001 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $45 $888 $189 Cost of sales material relating to the Fund (including printing and mailing expenses) 233 145 108 Allocated travel, entertainment and other promotional (including advertising) 114 73 54
LIBERTY ACORN TWENTY
Year ended December 31, 2001 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $33 $406 $54 Cost of sales material relating to the Fund (including printing and mailing expenses) 99 83 38 Allocated Travel, entertainment and other promotional (including advertising) 39 32 14
LIBERTY ACORN INTERNATIONAL
Year ended December 31, 2001 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $165 $826 $184 Cost of sales material relating to the Fund (including printing and mailing expenses) 342 136 100 Allocated Travel, entertainment and other promotional (including advertising) 155 64 49
LIBERTY ACORN FOREIGN FORTY
Year ended December 31, 2001 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs $28 $81 $75 Cost of sales material relating to the Fund (including printing and mailing expenses) 67 15 38 Allocated Travel, entertainment and other promotional (including advertising) 17 6 16
48 COLUMBIA THERMOSTAT FUND
Year ended December 31, 2001 ---------------------------- Class A Shares Class B Shares Class D Shares -------------- -------------- -------------- Fees to FSFs $0 $0 $0 Cost of sales material relating to the Fund (including printing and mailing expenses) 0 0 0 Allocated Travel, entertainment and other promotional (including advertising) 0 0 0
CODE OF ETHICS The 1940 Act and rules thereunder require that the Trust and the Adviser establish standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of the Funds might take advantage of that knowledge for their own benefit. The Trust, the Adviser and 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 Adviser to detect and prevent conflicts of interest. 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 Each Fund determines its 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. Shares of the Portfolio Funds are valued at their respective net asset values. The Portfolio Funds generally value securities in their portfolio for which market quotations are readily available at the current market values of those securities (generally the last reported sale price) and all other securities and assets at fair value pursuant to methods established in good faith by the board of directors or trustees of the Portfolio Fund. If market quotations of Portfolio Funds are not readily available, or if a quotation is determined not to represent a fair value, management will use a method that the Fund's Trustees believe accurately reflects a fair value. Each day, newspapers and other reporting services may publish the share prices of mutual funds at the close of business on the previous day. LIBERTY ACORN FUND, LIBERTY ACORN INTERNATIONAL, LIBERTY ACORN FOREIGN FORTY and the Portfolio Funds 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, LIBERTY 49 ACORN FOREIGN FORTY and the Portfolio Funds' 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 Adviser deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price. 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 Adviser 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 a Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such 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. 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. 50 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 $25. Investors Bank & Trust Company is the Trustee of LFD prototype plans and charges an annual fee as detailed in the application. 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) may be charged a $20 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 may be charged a $20 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, Class C or Class D 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 ADVISER. 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: 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). 51 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 calendar 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 Adviser; directors, officers and employees of the Adviser, LFD and other companies affiliated with the Adviser; 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 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. 52 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, C and D 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, C or D 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. EXCHANGES FOR AFFILIATES OF INVESTMENT ADVISER 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). 53 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 Funds under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of the Funds in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their 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 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 54 the Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received. Under certain circumstances, a Portfolio Fund may determine to make payment of a redemption request by COLUMBIA THERMOSTAT FUND wholly or partly by a distribution in kind of securities from its portfolio, instead of cash, in accordance with the rules of the SEC. In such cases, the Funds may hold securities distributed by a Portfolio Fund until the Adviser determines that it is appropriate to dispose of such securities. 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 and D 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. 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 (iv) 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 55 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 value of the amount of reinvested dividends received per share plus or minus the change in the net asset value per share for a given period. Total return percentage may be calculated by dividing the value of a share including reinvested distributions at the end of a given period by the value of the share at the beginning of the period and subtracting one. Average annual total return is the actual return on a $1,000 investment in a particular class of shares of each Fund, made at the beginning of a stated period, adjusted for the maximum sales charge or applicable CDSC for the class of shares of each Fund and assuming that all distributions were reinvested at NAV, converted to an average annual return assuming annual compounding. NONSTANDARDIZED TOTAL RETURN. Nonstandardized total returns may differ from standardized average annual total returns in that they may relate to nonstandardized periods, represent aggregate rather than average annual total returns or may not reflect the sales charge or CDSC. For all Funds other than COLUMBIA THERMOSTAT FUND, total return for a newer class of shares (Classes A, B and C) for periods prior to their inception includes (a) the performance of the newer class of shares since inception (October 16, 2000) and (b) the performance of the oldest existing class of shares (Class Z) from its inception date up to the date the newer class was offered for sale. The performance will not be adjusted to take into account the fact that the newer class of shares bears different class specific expenses than the oldest class of shares (e.g., Rule 12b-1 fees). Therefore, the total rate of return quoted for a newer class of shares will differ from the return that would be quoted had the newer class of shares been outstanding for the entire period over which the calculation is based (i.e., the total rate of return quoted for the newer class will be higher than the return that would have been quoted had the newer class of shares been outstanding for the entire period over which the calculation is based if the class specific expenses for the newer class are higher than the class specific expenses of the oldest class, and the total rate of return quoted for the newer class will be lower than the return that would be quoted had the newer class of shares been outstanding for this entire period if the class specific expenses for the newer class are lower than the class specific expenses of the oldest class). 56 The average annual total returns for the Funds' shares for the year ending December 31, 2001 are presented below. A Fund's total return "after taxes on distributions" shows the effect of taxable distributions, but not any taxable gain or loss, on an investment in shares of the Fund for a specified period of time. A Fund's total return "after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss realized by the shareholder upon the sale of fund shares at the end of a specified period. To determine these figures, all income, short-term capital gain distributions, and long-term capital gain distributions are assumed to have been taxed at the actual historical federal maximum tax rate. Those maximum tax rates are applied to distributions prior to reinvestment and the after-tax portion is assumed to have been reinvested in the Funds. State and local taxes are ignored. Actual after-tax returns depend on a shareholder's tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. Average Annual Total Return (After Taxes on Distributions) is computed as follows: ATV/D/ = P(l+T)n Where: P = the amount of an assumed initial investment in shares of a Fund T = average annual total return (after taxes on distributions) n = number of years from initial investment to the end of the period ATV/D/ = ending value of shares held at the end of the period after taxes on fund distributions but not after taxes on redemptions. Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) is computed as follows: ATV/DR/ = P(l+T)n Where: P = the amount of an assumed initial investment in shares of a Fund T = average annual total return (after taxes on distributions and redemption) n = number of years from initial investment to the end of the period ATV/DR/ = ending value of shares held at the end of the period after taxes on fund distributions and redemption. Performance information is not available for COLUMBIA THERMOSTAT FUND as it has not been in operations for one complete calendar year.
CLASS A SHARES Liberty Acorn Fund ------------------ 1 Year 5 Years 10 Years ------ ------- -------- With sales charge of 5.75% -0.51% 14.09% 15.85% Return After Taxes on Distributions -0.89% 11.51% 13.44% Return After Taxes on Distributions 0.06% 11.13% 12.79% and Sale of Fund Shares Without sales charge 5.56% 15.45% 16.54% Return After Taxes on Distributions 5.15% 12.84% 14.11% Return After Taxes on Distributions and Sale of Fund Shares 3.78% 12.30% 13.42%
Liberty Acorn International --------------------------- Life of Fund 1 year 5 years (inception 9/23/92) ------ ------- ------------------- With sales charge of 5.75% -26.10% 4.13% 10.23% Return After Taxes on Distributions -26.37% 2.61% 9.26% Return After Taxes on Distributions and Sale of Fund Shares -15.58% 3.38% 8.70% Without sales charge -21.59% 5.37% 10.94% Return After Taxes on Distributions -21.88% 3.83% 9.96% Return After Taxes on Distributions and Sale of Fund Shares -12.81% 4.41% 9.33%
57
Liberty Acorn USA ----------------- Life of Fund 1 year 5 years (inception 9/4/96) ------ ------- ------------------ With sales charge of 5.75% 11.83% 11.84% 14.31% Return After Taxes on Distributions 11.61% 10.75% 13.26% Return After Taxes on Distributions and Sale of Fund Shares 7.36% 9.51% 11.69% Without sales charge 18.65% 13.18% 15.59% Return After Taxes on Distributions 18.42% 12.06% 14.52% Return After Taxes on Distributions and Sale of Fund Shares 11.52% 10.66% 12.81%
Liberty Acorn Twenty -------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- With sales charge of 5.75% 1.46% 13.55% 15.58% Return After Taxes on Distributions 1.42% 12.64% 14.69% Return After Taxes on Distributions and Sale of Fund Shares 0.93% 10.79% 12.51% Without sales charge 7.65% 15.81% 17.80% Return After Taxes on Distributions 7.61% 14.89% 16.90% Return After Taxes on Distributions and Sale of Fund Shares 4.70% 12.68% 14.38%
Liberty Acorn Foreign Forty --------------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- With sales charge of 5.75% -33.24% 1.65% 4.76% Return After Taxes on Distributions -33.34% 1.48% 4.59% Return After Taxes on Distributions and Sale of Fund Shares -20.15% 1.29% 3.80% Without sales charge -29.17% 3.68% 6.78% Return After Taxes on Distributions -29.27% 3.51% 6.60% Return After Taxes on Distributions and Sale of Fund Shares -17.67% 2.92% 5.45%
58
CLASS B SHARES Liberty Acorn Fund ------------------ 1 Year 5 Years 10 Years ------ ------- -------- With applicable CDSC -0.08% 15.05% 16.45% Return After Taxes on Distributions -0.49% 12.43% 14.03% Return After Taxes on Distributions and Sale of Fund Shares 0.34% 11.96% 13.35% Without CDSC 4.92% 15.28% 16.45% Return After Taxes on Distributions 4.51% 12.68% 14.03% Return After Taxes on Distributions and Sale of Fund Shares 3.39% 12.17% 13.35%
Liberty Acorn International --------------------------- Life of Fund 1 year 5 years (inception 9/23/92) ------ ------- ------------------- With applicable CDSC -25.87% 4.92% 10.85% Return After Taxes on Distributions -26.15% 3.36% 9.88% Return After Taxes on Distributions and Sale of Fund Shares -15.42% 4.04% 9.26% Without CDSC -22.04% 5.23% 10.85% Return After Taxes on Distributions -22.33% 3.69% 9.88% Return After Taxes on Distributions and Sale of Fund Shares -13.09% 4.29% 9.26%
Liberty Acorn USA ----------------- Life of Fund 1 year 5 years (inception 9/4/96) ------ ------- ------------------ With applicable CDSC 12.92% 12.77% 15.34% Return After Taxes on Distributions 12.74% 11.67% 14.28% Return After Taxes on Distributions and Sale of Fund Shares 8.03% 10.32% 12.60% Without CDSC 17.92% 13.02% 15.44% Return After Taxes on Distributions 17.74% 11.92% 14.39% Return After Taxes on Distributions and Sale of Fund Shares 11.08% 10.53% 12.68%
59
Liberty Acorn Twenty -------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- With applicable CDSC 1.95% 14.75% 16.81% Return After Taxes on Distributions 1.91% 13.82% 15.89% Return After Taxes on Distributions and Sale of Fund Shares 1.23% 11.80% 13.55% Without CDSC 6.95% 15.51% 17.50% Return After Taxes on Distributions 6.91% 14.59% 16.60% Return After Taxes on Distributions and Sale of Fund Shares 4.28% 12.43% 14.13%
Liberty Acorn Foreign Forty --------------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- With applicable CDSC -33.22% 2.42% 5.61% Return After Taxes on Distributions -33.32% 2.24% 5.44% Return After Taxes on Distributions and Sale of Fund Shares -20.13% 1.90% 4.50% Without CDSC -29.73% 3.37% 6.47% Return After Taxes on Distributions -29.83% 3.19% 6.29% Return After Taxes on Distributions and Sale of Fund Shares -18.01% 2.67% 5.20%
CLASS C SHARES Liberty Acorn Fund ------------------ 1 Year 5 Years 10 Years ------ ------- -------- With applicable CDSC 3.86% 15.27% 16.44% Return After Taxes on Distributions 3.46% 12.66% 14.02% Return After Taxes on Distributions and Sale of Fund Shares 2.74% 12.16% 13.34% Without CDSC 4.86% 15.27% 16.44% Return After Taxes on Distributions 4.46% 12.66% 14.02% Return After Taxes on Distributions and Sale of Fund Shares 3.35% 12.16% 13.34%
60
Liberty Acorn International --------------------------- Life of Fund 1 year 5 years (inception 9/23/92) ------ ------- ------------------- With applicable CDSC -22.85% 5.21% 10.84% Return After Taxes on Distributions -23.14% 3.68% 9.87% Return After Taxes on Distributions and Sale of Fund Shares -13.58% 4.29% 9.25% Without CDSC -22.08% 5.21% 10.84% Return After Taxes on Distributions -22.37% 3.68% 9.87% Return After Taxes on Distributions and Sale of Fund Shares -13.11% 4.29% 9.25%
Liberty Acorn USA ----------------- Life of Fund 1 year 5 years (inception 9/4/96) ------ ------- ------------------ With applicable CDSC 16.92% 13.02% 15.44% Return After Taxes on Distributions 16.74% 11.92% 14.39% Return After Taxes on Distributions and Sale of Fund Shares 10.47% 10.53% 12.68% Without CDSC 17.92% 13.02% 15.44% Return After Taxes on Distributions 17.74% 11.92% 14.39% Return After Taxes on Distributions and Sale of Fund Shares 11.08% 10.53% 12.68%
Liberty Acorn Twenty -------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- With applicable CDSC 5.95% 15.51% 17.50% Return After Taxes on Distributions 5.91% 14.59% 16.60% Return After Taxes on Distributions and Sale of Fund Shares 3.67% 12.43% 14.13% Without CDSC 6.95% 15.51% 17.50% Return After Taxes on Distributions 6.91% 14.59% 16.60% Return After Taxes on Distributions and Sale of Fund Shares 4.28% 12.43% 14.13%
Liberty Acorn Foreign Forty --------------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- With CDSC -30.41% 3.39% 6.49% Return After Taxes on Distributions -30.51% 3.22% 6.32% Return After Taxes on Distributions and Sale of Fund Shares -18.42% 2.69% 5.22% Without CDSC -29.71% 3.39% 6.49% Return After Taxes on Distributions -29.81% 3.22% 6.32% Return After Taxes on Distributions and Sale of Fund Shares -18.00% 2.69% 5.22%
61
CLASS Z SHARES Liberty Acorn Fund ------------------ 1 Year 5 Years 10 Years ------ ------- -------- Without sales charge or CDSC 6.14% 15.60% 16.61% Return After Taxes on Distributions 5.64% 12.97% 14.17% Return After Taxes on Distributions and Sale of Fund Shares 4.13% 12.41% 13.47%
Liberty Acorn International --------------------------- Life of Fund 1 year 5 years (inception 9/23/92) ------ ------- ------------------- Without sales charge or CDSC -21.11% 5.51% 11.01% Return After Taxes on Distributions -21.40% 3.97% 10.04% Return After Taxes on Distributions and Sale of Fund Shares -12.52% 4.51% 9.39%
Liberty Acorn USA ----------------- Life of Fund 1 year 5 years (inception 9/4/96) ------ ------- ------------------ Without sales charge or CDSC 19.25% 13.32% 15.73% Return After Taxes on Distributions 18.77% 12.16% 14.62% Return After Taxes on Distributions and Sale of Fund Shares 11.88% 10.75% 12.90%
Liberty Acorn Twenty -------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- Without sales charge or CDSC 8.00% 15.97% 17.95% Return After Taxes on Distributions 7.96% 15.04% 17.04% Return After Taxes on Distributions and Sale of Fund Shares 4.91% 12.81% 14.51%
Liberty Acorn Foreign Forty --------------------------- Life of Fund (inception 1 year 3 years 11/23/98) ------ ------- --------- Without sales charge or CDSC -29.05% 3.74% 6.83% Return After Taxes on Distributions -29.15% 3.56% 6.66% Return After Taxes on Distributions and Sale of Fund Shares -17.59% 2.97% 5.50%
62 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, 2001 ----------------------------------- ------------------------- 1 Year................................................ 91.86% 5 Years............................................... 83.14% 10 Years.............................................. 85.31% LIBERTY ACORN INTERNATIONAL'S TAX EFFICIENCY THROUGH DECEMBER 31, 2001 -------------------------------------------- ------------------------- 1 Year................................................ NM%* 5 Years............................................... 72.05% Life of Fund (inception 9/23/92)...................... 91.19% LIBERTY ACORN USA'S TAX EFFICIENCY THROUGH DECEMBER 31, 2001 ---------------------------------- ------------------------- 1 Year................................................ 97.51% 5 Years............................................... 91.29% Life of Fund (inception 9/4/96)....................... 92.94% LIBERTY ACORN TWENTY'S TAX EFFICIENCY THROUGH DECEMBER 31, 2001 ------------------------------------- ------------------------- 1 Year................................................ 99.50% 3 Years............................................... 94.18% Life of Fund (inception 11/23/98)..................... 94.93% LIBERTY ACORN FOREIGN FORTY'S TAX EFFICIENCY THROUGH DECEMBER 31, 2001 -------------------------------------------- ------------------------- 1 Year................................................ NM%* 3 Years............................................... 95.19% Life of Fund (inception 11/23/98)..................... 97.51%
* Data is not meaningful because returns were negative. Performance results reflect any voluntary fee waivers or reimbursement of Fund expenses by the Adviser or its affiliates. Absent these fee waivers or expense reimbursements, performance results would have been lower. 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 63 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, 2001, some statistics for the Class Z shares of the Funds are as follows:
R(2) Beta Alpha ---- ---- ----- LIBERTY ACORN FUND vs. S&P 500 0.52 0.76 6.43% vs. Russell 2000 0.88 0.78 7.91% LIBERTY ACORN INTERNATIONAL vs. EMI Global Ex U.S. 0.72 1.18 9.34% vs. EAFE 0.60 1.03 5.64% LIBERTY ACORN USA vs. S&P 500 0.48 0.75 4.49% vs. Russell 2000 0.72 0.73 6.16% LIBERTY ACORN TWENTY vs. S&P 500 0.63 0.88 16.90% vs. S&P MidCap 400 0.65 0.78 6.70% LIBERTY ACORN FOREIGN FORTY vs. SSB World Ex U.S. 0.52 1.49 10.16% vs. EAFE 0.57 1.49 17.52%
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 Adviser or LFD to be reputable, and publications in the press pertaining to the Fund's performance or to the Adviser 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 64 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. The Funds may note their mention or recognition in newsletters, newspapers, magazines, or other media. Portfolio managers and other members of the Adviser'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 Adviser, 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. 65 APPENDIX I - DESCRIPTION OF BOND RATINGS A rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, the Adviser believes that the quality of debt securities in which the Funds invest should be continuously reviewed. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the ratings services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). MOODY'S RATINGS Aaa--Bonds 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. 66 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. 67 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. (10) b. Bylaws, as amended effective May 20, 2002. c.1 Specimen share certificate- Acorn Fund. (4) c.2 Specimen share certificate- Acorn International. (4) c.3 Specimen share certificate- Acorn USA. (5) c.4 Specimen shares certificates- Acorn Twenty and Acorn Foreign Forty. (8) 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. (10) c.6 Specimen share certificate for Class A shares of Columbia Thermostat Fund. 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 November 1, 2001. (11) d.2 Form of Supplement to Investment Advisory Agreement between Liberty Acorn Trust (on behalf of Columbia Thermostat Fund) and Liberty Wanger Asset Management, L.P., to be dated September __, 2002. d.3 Organizational Expenses Agreement between Acorn Investment Trust and Wanger Asset Management, L.P., dated September 3, 1996. (6) d.4 Form of Amended and Restated Administration Agreement between Liberty Acorn Trust (on behalf of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty, Liberty Acorn Foreign Forty and Columbia Thermostat Fund) and Liberty Wanger Asset Management, L.P., to be dated September ___, 2002. d.5 Form of Organizational Expenses Agreement between Liberty Acorn Trust (on behalf of Columbia Thermostat Fund) and Liberty Wanger Asset Management, L.P., to be dated September ___, 2002. d.6 Form of Expense Reimbursement Agreement to be dated September __, 2002. e. Form of Amended and Restated Underwriting Agreement between Liberty Acorn Trust and Liberty Funds Distributor, Inc. dated September __, 2002. f. None. g.1 Custodian contract between the Registrant and State Street Bank and Trust Company dated July 1, 1992. (2) g.2 Letter agreement applying custodian contract relating to Acorn International. (3) g.3 Letter agreement applying custodian contract relating to Acorn USA. (7) g.4 Letter agreement applying custodian contract and transfer agency and service agreement relating to Acorn Twenty and Acorn Foreign Forty, dated August 17, 1998. (9) g.5 Amendment to custodian contract between Liberty Acorn Trust and State Street Bank and Trust Company dated November 21, 2000. (10) g.6 Form of Letter agreement applying custodian contract relating to Columbia Thermostat Fund to be dated September __, 2002. h.1 Shareholders' Servicing and Transfer Agency Agreement between Liberty Acorn Trust and Liberty Funds Services, Inc., dated September 29, 2000. (10) h.2 Form of Amendment No. 1 to Shareholders' Servicing and Transfer Agency Agreement between Liberty Acorn Trust and Liberty Funds Services, Inc., to be dated September 25, 2002. i. Opinion of Bell, Boyd & Lloyd LLC dated September __, 2002.* j. Consent of Ernst & Young LLP. k. None. l. None. m.1 Form of Amended and Restated Rule 12b-1 Distribution Plan to be dated September ___, 2002. m.2 Form of Amended and Restated Rule 12b-1 Plan Implementing Agreement to be dated September __, 2002. n. Form of Amended and Restated Plan Pursuant to Rule 18f-3(d) to be dated September ___, 2002. p.1 Code of Ethics of Liberty Wanger Asset Management, L.P., Liberty Acorn Trust and Wanger Advisors Trust, as amended September 29, 2000. (10) p.2 Code of Ethics for Non-Interested Board Members, as amended May 23, 2001. (11) 2 p.3 Code of Ethics of Liberty Funds Distributor, Inc., the principal underwriter of the Funds, effective January 1, 2001. * To be filed by amendment. (1) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 53 to the registrant's registration statement, Securities Act file number 2-34223 (the "Registration Statement"), filed on April 30, 1996. (2) Previously filed. Incorporated by reference to exhibit 8.1 in post-effective amendment No. 53 to the Registration Statement filed on April 30, 1996. (3) Previously filed. Incorporated by reference to exhibit 8.2 in post-effective amendment No. 53 to the Registration Statement filed on April 30, 1996. (4) Previously filed. Incorporated by reference to exhibit 4.2 filed in post-effective amendment No. 54 to the Registration Statement filed on June 18, 1996. (5) 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. (6) Previously filed. Incorporated by reference to exhibit 5.3 filed in post-effective amendment No. 61 to the Registration Statement filed on April 30, 1998. (7) Previously filed. Incorporated by reference to exhibit 8.3 filed in post-effective amendment No. 61 to the Registration Statement filed on April 30, 1998. (8) 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. (9) 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. (10) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 70 to the Registration Statement filed on May 1, 2001. (11) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective Amendment No. 71 to the Registration Statement filed on April 25, 2002. 3 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. 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. 4 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 Variable Investment Trust, SteinRoe Variable Investment Trust, Liberty-Stein Roe Funds Income Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds Investment Trust, Liberty Floating Rate Fund, Liberty-Stein Roe Institutional Floating Rate Income Fund, Liberty Variable Investment Trust, Liberty-Stein Roe Funds Trust, Liberty Floating Rate Advantage Fund, The Galaxy Fund, The Galaxy VIP Fund, Galaxy Fund II, Wanger Advisors Trust and Liberty Acorn Trust. (b) The table below lists each director or officer of the principal underwriter named in the answer to Item 20.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT Abusheery, Greg Vice President None Aldi, Andrew Vice President None Anderson, Judith Vice President None Antone, Lewis Vice President None Ash, James Vice President None Babbitt, Debra Senior Vice President and None Compensation Officer Ballou, Rick Senior Vice President None Banks, Keith Director President Bartlett, John Managing Director None Blakeslee, James Senior Vice President None Blumenfeld, Alexander Vice President None Bozek, James Senior Vice President None Brown, Beth Senior Vice President None Campbell, Patrick 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 Denny, Jeffrey Vice President None Desilets, Marian Vice President Assistant Secretary Devaney, James Senior Vice President None DiMaio, Stephen Vice President None Downey, Christopher Vice President None Emerson, Kim P. Senior Vice President None
5 Erickson, Cynthia G. Senior Vice President None Evans, C. Frazier Managing Director None Feldman, David Managing Director None Feloney, Joseph Senior Vice President None Ferullo, Jeanne Vice President None Fisher, James Vice President None Ford, David Vice President None Fragasso, Philip Managing Director None Gentile, Russell Vice President None Goldberg, Matthew Senior Vice President None Grace, Anthony Vice President None Gubala, Jeffrey Vice President None Guenard, Brian Vice President None Hartnett, Kelly Vice President None Hodgkins, Joseph Senior Vice President None Hussey, Robert Managing Director None Iudice, Jr., Philip Treasurer and Chief Financial Officer None Jackson, Lyman Vice President None Jarstfer, Marlys Vice President None Johnston, Kenneth Vice President None Jones, Cynthia Vice President None Kelley, Terry M. Vice President None Lewis, Blair Vice President None Loewenberg, Jean Clerk None Lynch, Andrew Managing Director None Lynn, Jerry Vice President None Marcelonis, Sheila Vice President None Marsh, Curtis Senior Vice President None Martin, Peter Senior Vice President None McCombs, Gregory Senior 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'Shea, Kevin Managing Director None Owen Stephanie Vice President None Palombo, Joseph R. Director and Chief Operating Trustee and Chairman Officer of the Board Piken, Keith Senior Vice President None
6 Ratto, Gregory Vice President None Reed, Christopher B. Senior Vice President None Ross, Gary Senior Vice President None Santosuosso, Louise Senior Vice President None Schug, Derek Vice President None Schulman, David Senior Vice President None Scully-Power, Adam Vice President None Sellers, Gregory Vice President None Shea, Terence Vice President None Sideropoulos, Lou Senior Vice President None Sinatra, Peter Vice President None Soares, Jeffrey Vice President None Sprieck, Susan Vice President None Sullivan, Paul Vice President None Sweeney, Maureen Vice President None Tambone, James Chief Executive Officer; None Co-President; Director Tasiopoulos, Lou Co-President; Director None Torrisi, Susan Vice President None Tufts, Peter Vice President None Vaughey, Andrew Vice President None Wagner, Rebecca Vice President None Waldron, Thomas Vice President None Walsh, Brian Vice President None Warfield, James Vice President None Wess, Valerie Senior Vice President None Yates, Susan Vice President None Young, Deborah Senior Vice President None
* The address for each individual is One Financial Center, Boston, MA 02111. 7 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 ITEM 30. UNDERTAKINGS Not applicable. 8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of Chicago and State of Illinois on September 20, 2002. 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/ Robert E. Nason Trustee and chairman ) - ------------------------------------ ) Robert E. Nason ) ) /s/ Margaret Eisen Trustee ) - ------------------------------------ ) Margaret Eisen ) ) /s/ Leo A. Guthart Trustee ) - ------------------------------------ ) Leo A. Guthart ) ) /s/ Irving B. Harris Trustee ) - ------------------------------------ ) Irving B. Harris ) ) /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 ) September 20, 2002 - ------------------------------------ ) Charles P. McQuaid ) ) /s/ Allan B. Muchin Trustee ) - ------------------------------------ ) Allan B. Muchin ) ) /s/ John A. Wing Trustee ) - ------------------------------------ ) John A. Wing ) ) /s/ Ralph Wanger Trustee and President ) - ------------------------------------ (principal executive ) Ralph Wanger officer) ) ) ) /s/ Bruce H. Lauer Treasurer (principal ) - ------------------------------------ financial and accounting ) Bruce H. Lauer officer) )
9 INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
EXHIBIT NUMBER EXHIBIT - ------- ------- b. Bylaws, as amended effective May 20, 2002. c.6 Specimen share certificate for Class A shares of Columbia Thermostat Fund. d.2 Form of Supplement to Investment Advisory Agreement between Liberty Acorn Trust (on behalf of Columbia Thermostat Fund) and Liberty Wanger Asset Management, L.P., to be dated September __, 2002. d.4 Form of Amended and Restated Administration Agreement between Liberty Acorn Trust (on behalf of Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty, Liberty Acorn Foreign Forty and Columbia Thermostat Fund) and Liberty Wanger Asset Management, L.P., to be dated September __, 2002. d.5 Form of Organizational Expenses Agreement between Liberty Acorn Trust (on behalf of Columbia Thermostat Fund) and Liberty Wanger Asset Management, L.P., to be dated September ___, 2002. d.6 Form of Expense Reimbursement Agreement to be dated September __, 2002. e. Form of Amended and Restated Underwriting Agreement between Liberty Acorn Trust and Liberty Funds Distributor, Inc. to be dated September __, 2002. g.6 Form of Letter agreement applying custodian contract relating to Columbia Thermostat Fund to be dated September __, 2002. h.2 Form of Amendment No. 1 to Shareholders' Servicing and Transfer Agency Agreement between Liberty Acorn Trust and Liberty Funds Services, Inc., to be dated September 25, 2002. j. Consent of Ernst & Young LLP.
EXHIBIT NUMBER EXHIBIT - ------- ------- m.1 Form of Amended and Restated Rule 12b-1 Distribution Plan to be dated September __, 2002. m.2 Form of Amended and Restated Rule 12b-1 Plan Implementing Agreement to be dated September __, 2002. n. Form of Amended and Restated Plan Pursuant to Rule 18f-3(d) to be dated September __, 2002. p.3 Code of Ethics of Liberty Funds Distributor, Inc., the principal Underwriter of the Funds, effective January 1, 2001.
EX-99.B 3 b44206msexv99wb.txt SPECIMEN SHARE CERTIFICATE Exhibit b LIBERTY ACORN TRUST BYLAWS ------ Table of Contents ----------------- Section 1. Agreement and Declaration of Trust and Principal Office........... 1 1.1 Agreement and Declaration of Trust................................ 1 1.2 Principal Office of the Trust..................................... 1 Section 2. Shareholders...................................................... 1 2.1 Shareholder Meetings.............................................. 1 2.2 Place of Meetings................................................. 1 2.3 Notice of Meetings................................................ 1 2.4 Ballots........................................................... 2 2.5 Proxies........................................................... 2 Section 3. Trustees.......................................................... 2 3.1 Committees and Advisory Board..................................... 2 3.2 Chairman and Vice-chairman........................................ 2 3.3 Regular Meetings.................................................. 2 3.4 Special Meetings.................................................. 2 3.5 Notice............................................................ 3 3.6 Quorum............................................................ 3 3.7 Eligibility to Serve.............................................. 3 3.8 Independent Trustees.............................................. 3 Section 4. Officers and Agents............................................... 3 4.1 Enumeration; Qualification........................................ 3 4.2 Powers............................................................ 3 4.3 Election.......................................................... 4 4.4 Tenure............................................................ 4 4.5 President......................................................... 4 4.6 Vice Presidents................................................... 4 4.7 Treasurer......................................................... 4 4.8 Secretary......................................................... 4 Section 5. Resignations and Removals......................................... 4 Section 6. Vacancies......................................................... 5 Section 7. Shares of Beneficial Interest..................................... 5 7.1 Share Certificates................................................ 5 7.2 Loss of Certificates.............................................. 5 7.3 Discontinuance of Issuance of Certificates........................ 5 Section 8. Record Date and Closing Transfer Books............................ 5 Section 9. Seal.............................................................. 6 Section 10. Execution of Papers............................................... 6 Section 11. Fiscal Year....................................................... 6 Section 12. Amendments........................................................ 6 BYLAWS ------ OF -- ACORN INVESTMENT TRUST ----------------------- (as amended through October 24, 1997) Section 1. Agreement and Declaration of Trust and Principal Office -------------------------- 1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of Acorn Investment Trust, a Massachusetts business trust established by the Declaration of Trust (the "Trust"). 1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall be located in Chicago, Illinois. SECTION 2. SHAREHOLDERS. 2.1. SHAREHOLDER MEETINGS. A meeting of the shareholders of the Trust or of any one or more series or classes of shares may be called at any time by the Trustees, by the chairman, the president or, if the Trustees, the chairman and the president shall fail to call any meeting of shareholders for a period of 30 days after written application of one or more shareholders who hold at least 10% of all outstanding shares of the Trust, if shareholders of all series are required under the Declaration of Trust to vote in the aggregate and not by individual series at such meeting, or of any series or class, if shareholders of such series or class are entitled under the Declaration of Trust to vote by individual series or class at such meeting, then such shareholders may call such meeting. If the meeting is a meeting of the shareholders of one or more series or classes of shares, but not a meeting of all shareholders of the Trust, then only the shareholders of such one or more series or classes shall be entitled to notice of and to vote at the meeting. Each call of a meeting shall state the place, date, hour and purposes of the meeting. 2.2 PLACE OF MEETINGS. All meetings of the shareholders shall be held at the principal office of the Trust, or, to the extent permitted by the Declaration of Trust, at such other place within the United States as shall be designated by the Trustees or the president of the Trust. 2.3 NOTICE OF MEETINGS. A written notice of each meeting of shareholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meeting to each shareholder entitled to vote thereat by leaving such notice with him or her or at his or her residence or usual place of business or by mailing it, postage prepaid, and addressed to such shareholder at his or her address as it appears in the records of the Trust. Such notice shall be given by the secretary or an assistant secretary or by an officer designated by the Trustees. No notice of any meeting of shareholders need be given to a shareholder if a written waiver of notice, executed before or after the meeting by such shareholder or his or her attorney thereunto duly authorized, is filed with the records of the meeting. 2.4 BALLOTS. No ballot shall be required for any election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. 2.5. PROXIES. Shareholders entitled to vote may vote either in person or by proxy executed not more than six months before the meeting named therein, which proxies shall be filed with the secretary or other person responsible to record the proceedings of the meeting before being voted. The placing of a shareholder's name on a proxy pursuant to telephone or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution of such proxy by or on behalf of such shareholder. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. [amended 9/30/97] SECTION 3. TRUSTEES 3.1 COMMITTEES AND ADVISORY BOARD. The Trustees may appoint from their number an executive committee and other committees. Except as the Trustees may otherwise determine, any such committee may make rules for conduct of its business. The Trustees may appoint an advisory board to consist of not less than two nor more than five members. The members of the advisory board shall be compensated in such manner as the Trustees may determine and shall confer with and advise the Trustees regarding the investments and other affairs of the Trust. Each member of the advisory board shall hold office until the first meeting of the Trustees following the next meeting of the shareholders and until his or her successor is elected and qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified, or until the advisory board is sooner abolished by the Trustees. 3.2 CHAIRMAN AND VICE-CHAIRMAN. The Trustees may appoint a chairman and a vice-chairman, who shall be Trustees of the Trust but need not be shareholders. The chairman shall preside at all meetings of the shareholders and of the Trustees and in the chairman's absence, the vice-chairman shall so preside. The chairman and the vice-chairman shall hold their respective positions at the pleasure of the Trustees. Neither the chairman nor the vice-chairman shall, by reason of holding such position, be or be deemed to be officers of the Trust. [added 9/15/92] 3.3 REGULAR MEETINGS. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. [renumbered 9/15/92] 3.4 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time and at any place designated in the call of the meeting; when called by the chairman, the president or the treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the secretary or an assistant secretary or by the officer or one of the Trustees calling the meeting. [renumbered 9/15/92] 2 3.5 NOTICE. It shall be sufficient notice to a Trustee to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. [renumbered 9/15/92] 3.6 QUORUM. At any meeting of the Trustees one-third of the Trustees then in office shall constitute a quorum; provided, however, a quorum shall not be less than two. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. [renumbered 9/15/92] 3.7 ELIGIBILITY TO SERVE. After June 1, 2002 no person shall be appointed to serve as a trustee after attaining the age of 65 years. Any Trustee shall retire as a Trustee as of the end of the calendar year in which the Trustee attains the age of 75 years, except that this provision shall not apply to Irving B. Harris, the founder of The Acorn Fund, Inc., the predecessor of the Trust, or to the chairman or vice-chairman of the board of trustees, or to the chairman of the executive committee of the board of trustees. [added 2/2/93; amended 12/2/94, 2/25/97 and 5/20/02] 3.8 INDEPENDENT TRUSTEES. From the Effective Time, as defined in the Agreement and Plan of Merger among Wanger Asset Management, Ltd., Wanger Asset Management, L.P., Liberty Financial Companies, Inc. and WAM Acquisition L.P. dated as of June 9, 2000, through and including the third anniversary of the Effective Time, the Trust may not at any time have a board more than 25% of the members of which are persons who are "interested persons" of the Trust's investment adviser or of Wanger Asset Management, L.P., as the term "interested persons" is defined by the Investment Company Act of 1940. [added 9/20/00] SECTION 4. OFFICERS AND AGENTS 4.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a president, a treasurer, a secretary and such other officers, if any, as the Trustees from time to time may in their discretion elect or appoint. The Trust may also have such agents, if any, as the Trustees from time to time may in their discretion appoint. Any officer may be but none need be a Trustee or shareholder. Any two or more offices may be held by the same person. [amended 9/15/92] 4.2 POWERS. Subject to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to his or her office as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate, including without limitation the power to make purchases and sales of 3 portfolio securities of the Trust pursuant to recommendations of the Trust's investment adviser in accordance with the policies and objectives of the Trust set forth in its prospectus and with such general or specific instructions as the Trustees may from time to time have issued. 4.3 ELECTION. The president, the treasurer and the secretary shall be elected annually by the Trustees. Other officers, if any, may be elected or appointed by the Trustees at any time. [amended 9/15/92] 4.4 TENURE. The president, the treasurer and the secretary shall hold office until their respective successors are chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. Each other officer shall hold office at the pleasure of the Trustees. Each agent shall retain his or her authority at the pleasure of the Trustees. [amended 9/15/92] 4.5 PRESIDENT. The president shall be the chief executive officer of the Trust. In the absence of the chairman and the vice-chairman, or in the event of the inability or refusal to act of both of them, the president shall preside at meetings of the Trustees or shareholders. [amended 9/15/92] 4.6 VICE PRESIDENTS. In the absence of the president, or in the event of the president's inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting shall have all the powers of the president. Any vice president shall have such other duties and powers as shall be designated from time to time by the Trustees or the president. [renumbered 9/15/92] 4.7 TREASURER. The treasurer shall be the chief financial and accounting officer of the Trust and subject to any arrangement made by the Trustees with a bank or trust company or other organization as custodian or transfer or shareholder services agent, shall be in charge of its valuable papers and its books of account and accounting records, and shall have such duties and powers as shall be designated from time to time by the Trustees or the president. Any assistant treasurer shall have such duties and powers as shall be designated from time to time by the Trustees. [renumbered 9/15/92] 4.8 SECRETARY. The secretary shall record all proceedings of the shareholders and the Trustees in books to be kept therefor, which books shall be kept at the principal office of the Trust. In the absence of the secretary from any meeting of shareholders or Trustees, an assistant secretary, or if there be none or he or she is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid books. [renumbered 9/15/92] SECTION 5. RESIGNATIONS AND REMOVALS Any Trustee, chairman, vice-chairman, officer or advisory board member may resign at any time by delivering his or her resignation in writing to the president, the treasurer or the secretary or to a meeting of the Trustees. The Trustees may remove any officer elected by them with or without cause by the vote of a majority of the Trustees then in office. Except to the extent expressly provided in a written agreement with the Trust, no Trustee, chairman, vice-chairman, officer, or 4 advisory board member resigning, and no officer, chairman, vice-chairman, or advisory board member removed, shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. [amended 9/15/92] SECTION 6. VACANCIES A vacancy in any office may be filled at any time. Each successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary, until his or her successor is chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. [amended 9/15/92] SECTION 7. SHARES OF BENEFICIAL INTEREST 7.1 SHARE CERTIFICATES. No certificates certifying the ownership of shares shall be issued except as the Trustees may otherwise authorize. In the event that the Trustees authorize the issuance of share certificates, subject to the provisions of Section 7.3, each shareholder shall be entitled to a certificate stating the number of whole shares owned by him or her, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the chairman, the president or a vice president and by the treasurer or secretary. Such signatures may be facsimiles if the certificate is signed by a transfer agent or by a registrar, other than a Trustee, officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he or she were such officer at the time of its issue. In lieu of issuing certificates for shares, the Trustees or the transfer agent may either issue receipts therefor or keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. 7.2 LOSS OF CERTIFICATES. In the case of the alleged loss or destruction or the mutilation of a share certificate, a duplicate certificate may be issued in place thereof, upon such terms as the Trustees may prescribe. 7.3 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. SECTION 8. RECORD DATE AND CLOSING TRANSFER BOOKS The Trustees may fix in advance a time, which shall not be more than 90 days before the date of any meeting of shareholders or the date for the payment of any dividend or making of any other distribution to shareholders, as the record date for determining the shareholders having the right to notice and to vote at such meeting and any adjournment thereof or the right to receive such 5 dividend or distribution, and in such case only shareholders of record on such record date shall have such right, notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any of such purposes close the transfer books for all or any part of such period. [amended 10/24/97] SECTION 9. SEAL The seal of the Trust shall, subject to alteration by the Trustees, consist of a flat-faced circular die with the word "Massachusetts," together with the name of the Trust and the year of its organization, cut or engraved thereon; but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. SECTION 10. EXECUTION OF PAPERS Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Trust shall be signed, and all transfers of securities standing in the name of the Trust shall be executed, by the president or by one of the vice presidents or by the treasurer or by whomsoever else shall be designated for that purpose by the vote of the Trustees and need not bear the seal of the Trust. [amended 9/15/92] SECTION 11. FISCAL YEAR Except as from time to time otherwise provided by the Trustees, the fiscal year of the Trust shall end on December 31. SECTION 12. AMENDMENTS These Bylaws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by one or more writings signed by such a majority. 6 EX-99.C(6) 4 b44206msexv99wcx6y.txt SPECIMEN SHARE CERTIFICATE Exhibit c.6 - -------------- -------------- NUMBER SHARES - -------------- -------------- _______ _______ - -------------- -------------- COLUMBIA THERMOSTAT FUND SHARE CERTIFICATE CUSIP 53015P759 THIS CERTIFIES THAT ____________________________________________ is the owner of SEE REVERSE FOR CERTAIN DEFINITIONS ________________________________________________________________________________ --------------- [NUMBER OF SHARES] CUSIP 53015P759 --------------- CLASS A SHARES OF BENEFICIAL INTEREST OF COLUMBIA THERMOSTAT 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 certification 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 signature of the Trust's duly authorized officers. Dated ___________________, 2002 COUNTERSIGNED: LIBERTY FUND SERVICES , INC. By: TRANSFER AGENT ____________________ ___________________ _________ AUTHORIZED SIGNATURE ASSISTANT TREASURER PRESIDENT 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 entity in common UGTA Under Uniform Gifts to Minors Act UTMA Uniform Transfer to Minors Act ADM Administrator FDN Foundation Administratrix PL Public Law AGMT Agreement TR Trustee CUST Custodian for UA Under Agreement EST Estate of UW Under Will EX Executor Executrix 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 used 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 ___________________________________ (Signature guarantees are subject 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 _____________________________________________ LF-34028 4/02 000231 EX-99.D(2) 5 b44206msexv99wdx2y.txt FORM OF SUPPLEMENT TO INVESTMENT ADVISORY AGREEMEN Exhibit d.2 LIBERTY ACORN TRUST September __, 2002 Liberty Wanger Asset Management, L.P. Attention: Bruce H. Lauer 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Ladies and Gentlemen: Supplement to Investment Advisory Agreement ------------------------------------------- Pursuant to Section 1 of the Investment Advisory Agreement between Liberty Acorn Trust (the "Trust") and Liberty Wanger Asset Management, L.P. dated November 1, 2001 (the "Advisory Agreement"), we hereby notify you that the board of trustees of Liberty Acorn Trust has established an additional series of the Trust, designated Columbia Thermostat Fund, and has appointed you as investment adviser to that series of the Trust on the terms and conditions set forth in the Advisory Agreement, except that for the services to be rendered and the expenses to be assumed and to be paid by you under the Advisory Agreement, the Trust on behalf of Columbia Thermostat Fund shall pay to you fees accrued daily and paid monthly at the annual rate of 0.10% of Columbia Thermostat Fund's net assets. Very truly yours, LIBERTY ACORN TRUST By -------------------------------------- Ralph Wanger Appointment as Advisor for the series of the Trust designated Columbia Thermostat Fund accepted this ___ day of September 2002. LIBERTY WANGER ASSET MANAGEMENT, L.P. By WAM Acquisition GP, Inc. Its General Partner By -------------------------------------- Bruce H. Lauer EX-99.D(4) 6 b44206msexv99wdx4y.txt AMENDED AND RESTATED ADMINISTRAATION AGREEMENT Exhibit d.4 AMENDED AND RESTATED 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 25, 2002. 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 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 4 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: Cameron S. Avery 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 ---------------------------------- Bruce H. Lauer Vice President and Treasurer LIBERTY WANGER ASSET MANAGEMENT, L.P. By --------------------------------- 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 Columbia Thermostat Fund Dated: September ___, 2002. LIBERTY ACORN TRUST By ------------------------------------ Bruce H. Lauer Vice President and Treasurer LIBERTY WANGER ASSET MANAGEMENT, L.P. By ----------------------------------- EX-99.D(5) 7 b44206msexv99wdx5y.txt COLUMBIA THERMOSTAT FUND ORG. EXPENSE REPORT Exhibit d.5 COLUMBIA THERMOSTAT FUND ORGANIZATIONAL EXPENSES AGREEMENT LIBERTY ACORN TRUST, a Massachusetts business trust (the "Trust") and LIBERTY WANGER ASSET MANAGEMENT, L.P., a Delaware limited partnership ("WAM"), in consideration for the engagement by the Trust of WAM as the investment advisor for the series of the Trust designated Columbia Thermostat Fund (the "Fund") pursuant to a separate agreement, hereby agree as follows: 1. ADVANCEMENT OF EXPENSES. WAM shall pay all of the organizational expenses of the Fund, including but not limited to initial franchise taxes, registration fees and fees for services rendered prior to the commencement of the initial public offering of shares of the Fund, subject to the right to be reimbursed pursuant to paragraph 2. 2. REIMBURSEMENT AND AMORTIZATION OF EXPENSES. The Fund shall amortize the organizational expenses over a period of 60 months from the commencement of the initial public offering of shares of the Fund, and the Fund shall reimburse WAM during the period of such amortization by paying to WAM on the last business day of each month an amount equal to the organizational expenses amortized by the Fund during that month. 3. LIMITATION ON REIMBURSEMENT. If the Fund should be liquidated during such five-year period prior to the complete amortization of all organizational expenses, neither the Fund nor the Trust shall have any duty to reimburse WAM for organizational expenses unamortized as of the time of liquidation. 4. OBLIGATION OF THE TRUST. This agreement is executed by an officer of the Trust on behalf of the Trust and not individually. The obligations of this agreement are binding only upon the assets and property of the Fund and the Trust and not upon the trustees, officers or shareholders of the Trust individually, nor upon the assets of any other series of the Trust. The Agreement and Declaration of Trust under which the Trust was organized and operates is on file with the Secretary of the Commonwealth of Massachusetts. Dated: September ___, 2002 LIBERTY ACORN TRUST LIBERTY WANGER ASSET MANAGEMENT, L.P., by WAM Acquisition GP, Inc. its General Partner By: ____________________________ By: ________________________________ Ralph Wanger Bruce H. Lauer EX-99.D(6) 8 b44206msexv99wdx6y.txt FORM OF EXPENSE REIMBURSEMENT AGREEMENT Exhibit d.6 EXPENSE REIMBURSEMENT AGREEMENT AGREEMENT, made this ____ day of September, 2002, by and between COLUMBIA THERMOSTAT FUND (the "Fund"), a series of Liberty Acorn Trust (the "Trust"), and LIBERTY WANGER ASSET MANAGEMENT, L.P., a Delaware limited partnership (the "Advisor"). WHEREAS, the Fund and the Advisor have separately entered into a Management Agreement dated September 26, 2002 (the "Management Agreement"); WHEREAS, the Advisor has voluntarily agreed to waive fees and reimburse certain expenses of the Fund, such that total fund operating expenses (exclusive of distribution and service fees, interest and fees on borrowings, and expenses associated with the Fund's investment in other investment companies) do not exceed the annual rate of .60% of average daily net assets of the Fund (the "Expense Limit"), which agreement may be discontinued by the Advisor at any time; and WHEREAS, the Fund is prepared to repay for a certain period the amounts waived or reimbursed by the Advisor (all such amounts waived or reimbursed and not repaid to the Advisor shall be referred to as the "Repayment Amount") to the extent the repayments do not cause the Fund to exceed the Expense Limit. NOW, WHEREFORE, in consideration of the mutual covenants hereinafter contained, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed by and between the parties hereto as follows: 1. The Fund agrees to repay monthly to the Advisor the Repayment Amount through December 31, 2005, provided that no such repayment shall cause the Fund's annual total fund operating expenses (calculated as set forth above) to exceed the Expense Limit. 2. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder shall not be thereby affected. This Agreement may only be amended in writing by the consent of the parties. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, exclusive of conflict of law provisions. 3. The Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts. This Agreement is executed on behalf of the Fund by the Fund's officers as officers and not individually and the obligations imposed upon the Fund by this Agreement are not binding upon any of the Trustees or officers of the Trust or officers or shareholders of the Fund individually but are binding only upon the assets and property of the Fund. IN WITNESS WHEREOF, the Fund and the Advisor have caused this Agreement to be executed on the day and year above written. COLUMBIA THERMOSTAT FUND By: __________________________________ LIBERTY WANGER ASSET MANAGEMENT, L.P. By: __________________________________ EX-99.E 9 b44206msexv99we.txt AMENDED AND RESTATED UNDERWRITING AGREEMENT Exhibit e AMENDED AND RESTATED 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 l2b-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 ____, 2002. After this Agreement shall become effective, unless terminated as provided herein, it shall remain in effect through July 31, 2003 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 majority of the 8 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: ------------------------------------- Co-President ATTEST: LIBERTY ACORN TRUST By: ------------------------------------- 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 Columbia Thermostat Fund Dated as of September ___, 2002. A-1 EX-99.G(6) 10 b44206msexv99wgx6y.txt FORM OF LETTER AGREEMENT Exhibit g.6 Liberty Acorn Trust 227 West Monroe Suite 3000 Chicago, Illinois 60606-5016 1-800-9-ACORN-9 (1-800-922-6769) September 25, 2002 State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 Ladies and Gentlemen: This is to advise you that Liberty Acorn Trust (formerly named Acorn Investment Trust) (the "Trust") has established a new series of the Trust designated Columbia Thermostat Fund. In accordance with the Additional Funds provision in Section 17 of the Custodian Contract dated July 1, 1992 between the Trust and State Street Bank and Trust Company, the Trust hereby requests that you act as Custodian for the new series under the terms of the Custodian Contract. Please indicate your acceptance of this appointment as Custodian by executing three copies of this Letter Agreement, returning two copies to us and retaining one copy for your records. LIBERTY ACORN TRUST By: -------------------------------------- Bruce H. Lauer Vice President, Treasurer, Secretary Agreed to this ____ day of _______________, 2002. STATE STREET BANK AND TRUST COMPANY By: -------------------------------------------- Name: Title: EX-99.H(2) 11 b44206msexv99whx2y.txt AMEN.1 TO SHAREHOLDER SERVICING & TRANSFER AGENT Exhibit h.2 AMENDMENT NO. 1 TO SHAREHOLDERS' SERVICING AND TRANSFER AGENT AGREEMENT This Amendment No. 1 to the Shareholders' Servicing and Transfer Agent Agreement (the "Amendment") is hereby made by and between Liberty Acorn Trust (the "Trust"), a Massachusetts business trust and Liberty Funds Services, Inc. ("LFS"), a Massachusetts corporation. This Amendment is dated as of September 25, 2002. Capitalized terms not defined herein shall have the meaning ascribed to them in the Shareholders' Servicing and Transfer Agent Agreement dated as of September 29, 2000 (the "Agreement"). WHEREAS, under the Agreement the Trust has appointed LFS as Transfer Agent, Registrar and Dividend Disbursing Agent for each series of the Trust listed in Schedule A attached thereto, each a registered investment company, WHEREAS, under the Agreement the Trust will pay LFS for the services provided thereunder in accordance with and in the manner set forth in Schedule B attached thereto; and WHEREAS, the parties to the Agreement desire to amend Schedule A and Schedule B attached thereto to reflect the offering of a new series of the Trust. NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. SCHEDULES A AND B. Pursuant to Section 28 of the Agreement, the parties hereto mutually agree that Schedules A and B attached to the Agreement be deleted and replaced in their entirety by the Schedules A and B attached to this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. LIBERTY ACORN TRUST By: --------------------------------------- Name: Bruce H. Lauer Title: Vice President and Treasurer LIBERTY FUNDS SERVICES, INC. By: --------------------------------------- Name: Title: President 2 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 Columbia Thermostat Fund 3 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 Amendment. I. CLASS A, CLASS B, CLASS C AND CLASS D SHARES Class A, Class B, Class C and Class D 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' 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 4 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. 5 "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. "CLASS' 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 a class of shares of a Fund (excluding Columbia Thermostat 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: ---------------------------------------------------- Bruce H. Lauer, Vice President and Treasurer LIBERTY FUNDS SERVICES, INC. By: ---------------------------------------------------- 6 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 7 EX-99.J 12 b44206msexv99wj.txt CONSENT OF ERNST & YOUNG EXHIBIT J CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the caption "Independent Auditors" and to the use of our report dated February 8, 2002 on the 2001 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. 73 to the Registration Statement under the Securities Act of 1933 (Registration No. 2-34223) and in the Amendment No. 48 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-1829). /s/ ERNST & YOUNG LLP Chicago, Illinois September 20, 2002 EX-99.M(1) 13 b44206msexv99wmx1y.txt AMENDED AND RESTATED RULE 12-B-1 DIST. PLAN Exhibit m.1 Liberty Acorn Trust Amended and Restated 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, Class C or Class D shares of each Fund. I. Plan Applying to Class A, B, C and D Shares Each Fund having Class A, B, C or D shares shall pay a service fee at the annual rate of 0.25% of the net assets of its Class A, B, C and D 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, C and D 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, Class C or Class D shares are authorized by this Plan. VI. Effective Date This Plan shall be effective on September 25, 2002. VII. Continuation; Amendment; Termination This Plan shall continue in effect with respect to Class A, Class B, Class C and Class D 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 25, 2002. By: ________________________ 2 APPENDIX I Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty Columbia Thermostat Fund Dated as of the effective date of the Liberty Acorn Trust Rule 12b-1 Distribution Plan I-1 EX-99.M(2) 14 b44206msexv99wmx2y.txt AMENDED AND RESTATED RULE 12-B-1 Exhibit m.2 LIBERTY ACORN TRUST AMENDED AND RESTATED 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 September ____, 2002: 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: By: --------------------------------- ---------------------------------- 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 Columbia Thermostat Fund I-1 EX-99.N 15 b44206msexv99wn.txt AMENDED AND RESTATED RULE 12F-3(D) Exhibit n LIBERTY ACORN TRUST Amended and Restated 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, Class D 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 25, 2002. 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, Class C and Class D 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, Class C and Class D 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 2 through the reinvestment of dividends and other distributions on Class B shares convert to Class A shares proportionally to the amount of Class B shares otherwise being converted. Class B shares of a 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, Class C and Class D 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 D SHARES Class D shares of each Fund are offered at NAV plus the initial sales charges described in the Fund's prospectus and statement of additional information for Class D shares as from time to time in effect. Initial sales charges may not exceed 1.00%, and may be reduced or waived as 3 permitted by Rule 22d-1 under the 1940 Act and as described in the Fund's prospectus and statement of additional information for Class D shares from time to time in effect. Class D shares that are redeemed within up to one year 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 D 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 Fund's prospectus and statement of additional information for Class D shares as from time to time in effect. Class D shares pay distribution and service fees pursuant to a 12b-1 Plan as described in the Fund's prospectus and statement of additional information for Class D 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 D shares pay (i) a share of transfer agency fees and expenses allocable to Class A, Class B, Class C and Class D 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 D shares as described in the Fund's prospectus and statement of additional information for Class D shares in effect from time to time. Class D shares of a Fund may be exchanged, at the holder's option, for Class D shares of any other Liberty Fund offering Class D shares, except to the extent such an exchange is limited by the Fund's prospectus for Class D shares as from time to time in effect, without the payment of a CDSC. If the Class D 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 D 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 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 ___, 2002 By: _________________________ 4 SCHEDULE I Liberty Acorn Fund Liberty Acorn International Liberty Acorn USA Liberty Acorn Twenty Liberty Acorn Foreign Forty Columbia Thermostat Fund I-1 EX-99.P(3) 16 b44206msexv99wpx3y.txt LFDI CODE OF ETHICS LIBERTY COMPANIES EFFECTIVE JANUARY 1, 2001 THE LIBERTY FUNDS LIBERTY COMPANIES: CRABBE HUSON GROUP, INC. LIBERTY ADVISORY SERVICES CORP. LIBERTY ASSET MANAGEMENT COMPANY LIBERTY FUNDS GROUP LLC Including: ALPHATRADE, INC. COLONIAL ADVISORY SERVICES, INC. COLONIAL MANAGEMENT ASSOCIATES, INC. LIBERTY FUNDS DISTRIBUTOR, INC. STEIN ROE & FARNHAM INC. NEWPORT FUND MANAGEMENT, INC. NEWPORT PACIFIC MANAGEMENT, INC. CODE OF ETHICS Revised 12/18/01 CODE OF ETHICS January 1, 2001 Table of Contents Overview 2 Things You Need to Know to Use This Code 3 Part I General Principles 5 Part II Prohibited Transactions and Activities 7 (A) Prohibition of Fraud, Deceit Etc by Access Person 7 (B) Prohibition on Trading Securities Being Purchased, Sold or Considered for a Fund 7 (C) Exceptions 8 (D) Preclearance 8 (E) Seven-Day Prohibition 9 (F) Purchase and Sale of Securities Within 60 Days 9 (G) Prohibition on Purchases of IPOs 10 (H) Prohibition on Purchases of Private Placements Without Advance Approval 10 (I) Brokerage Accounts 10 (J) Investment Clubs 10 (K) Prohibitions on Advising Other Accounts 10 Part III Reporting Requirements 11 1. Initial Holdings Reports 11 2. Quarterly Transaction Reports 11 3. Annual Holdings Reports 12 Part IV Definitions 13 Access Person 13 Beneficial Ownership 14 Code Officer 15 Covered Company 15 Covered Security 15 Family/Household 15 Independent Trustee 16 Investment Person 16 Liberty Company 17 Appendix A Standard for Sub-Advisers That Want to Operate Under Their Own Code of Ethics 18 Appendix B List of Covered Companies and Their Code Officers 19 Appendix C Preclearance Procedures 20 Page 1 CODE OF ETHICS January 1, 2001 LIBERTY COMPANIES, INC. CODE OF ETHICS Effective January 1, 2001 This is the Code of Ethics of: o all of the indirect subsidiaries of Fleet Boston Financial Corporation listed on Appendix B that act as advisers, subadvisers, principal underwriter or executing broker for any registered investment companies listed on Appendix B; o all of the registered investment companies for which any of these subsidiaries act as advisers, subadvisers, principal underwriter or executing broker. In this Code, o these subsidiaries of Fleet Boston Financial Corporation are called the "Liberty Companies," o these investment companies are called the "Funds," and o all non-Fund advisory and subadvisory clients of the Liberty Companies are called "Clients." In this Code, "Client account" refers to assets managed by a Liberty Company as adviser or subadviser for a Client. This Code also applies to every Sub-Adviser to any of the Funds that is not a subsidiary of Fleet Boston Financial Corporation , except Sub-Advisers that the Board of Trustees of the Funds have authorized to operate under their own Codes of Ethics under the standards explained in Appendix A to this Code of Ethics. In this Code, the Funds, the Liberty Companies and Fund sub-advisers that are not Liberty Companies and that have not been authorized to operate under their own codes ("Unaffiliated Sub-Advisers") are called "Covered Companies." This Code applies to all board members, officers and employees of all Covered Companies. Overview This Code is designed to protect the Funds and Clients against improper securities trading for the accounts of certain people who are associated with the Funds, the Liberty Companies or the Unaffiliated Sub-Advisers. The Code uses three main features to protect the Funds and Clients: Page 2 CODE OF ETHICS January 1, 2001 o it prohibits certain activities by employees, officers and board members of Covered Companies that involve the potential for conflicts of interest o it prohibits certain kinds of trading by "Access Persons" and o it requires "Access Persons" to report their securities holdings and transactions, so they can be checked for conflicts with the investment activities of Funds and Client accounts. Things You Need to Know to Use This Code 1. Terms in boldface type have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms. The definitions are at the end of the Code (Part IV). 2. Part I of this Code applies to all personnel of all Covered Companies. To understand what other parts of this Code apply to you, you need to know whether you fall into one or more of these categories: Access Person, Investment Person and/or Independent Trustee. If you don't know, ask the Code Officer of your Covered Company. Each Covered Company's Code Officer is listed on Appendix B to this Code. NOTE: If you are an Investment Person, you are automatically an Access Person too, so you must comply with both the Access Person provisions and the Investment Person provisions. If you are an Independent Trustee, you are automatically an Access Person, but only a few provisions of this Code apply to you. See the definition of Independent Trustee at the end of this Code for a list of the provisions that apply to you. Access Persons and Investment Persons are subject to Parts II and III of this Code as well as to Part I. This Code has seven sections: Part I General Principles (Applies to All Personnel) Part II Prohibited Transactions and Activities (Access Persons and Investment Persons) Part III Reporting Requirements Part IV Definitions Appendix A Standards for Fund Sub-Advisers That Want to Operate Under Their Own Codes of Ethics Appendix B List of Covered Companies and Their Code Officers Appendix C Pre-Clearance Procedures Page 3 CODE OF ETHICS January 1, 2001 There are also Reporting Forms for Access Persons. You can get copies of the Reporting Forms from your Code Officer. 3. The Code Officer of each Covered Company, subject to the approval of the Asset Management Group Senior Counsel of Fleet (or his designee), has the authority to grant written waivers of the provisions of this Code for personnel of that Covered Company in appropriate instances. However: o the Liberty Companies expect that waivers will be granted only in rare instances, and o some provisions of the Code that are mandated by SEC rule cannot be waived. Page 4 CODE OF ETHICS January 1, 2001 PART I General Principles These Apply to All Personnel of Each Covered Company (including All Board Members of Each Covered Company) Each of the Funds' advisers and sub-advisers is a fiduciary for the Funds. Each Liberty Company that is an adviser or subadviser of non-Fund Clients is a fiduciary for its Clients. Each board member of a Fund is a fiduciary for that Fund. These fiduciary relationship require all personnel of every Covered Company to put the interests of the Funds and Clients ahead of their own business, financial and personal interests. Because of these fiduciary relationships, it is generally improper for a Covered Company or its board members, officers or employees to: o use for their own benefit (or the benefit of anyone other than the Funds or Client accounts) information about the purchases or sales of portfolio securities that are being made for a Fund or a Client account or that a Sub-Adviser is considering making for a Fund; or o take advantage of investment opportunities that would otherwise be available for the Funds. Also, as a matter of business policy, the Funds and the Liberty Companies want to avoid even the appearance that the Liberty Companies, the Unaffiliated Sub-Advisers, those organizations' personnel, the Funds' Trustees and officers or others receive any improper benefit from information about the portfolio holdings or trading of the Funds or Client accounts. No board member, officer or employee of any Liberty Company may: o recommend that a Fund or its adviser or sub-adviser or a Client take action or refrain from taking action regarding any Security for the personal benefit of that person or a member of that person's Family/Household, or cause a Fund or its adviser or sub-adviser or a Client account to take or refrain from taking any action for such personal benefit; o directly or indirectly receive, in connection with any purchase or sale of securities by a Fund, a Client account or a Covered Company, (1) any cash or other compensation (regardless of amount), or (2) any gift or other item of more than de minimis value (that is, more than $100 per item or in the aggregate from any third party during any 12-month period); o recommend that any Liberty Company buy or sell for its own account any security that such board member, officer or employee knows is being purchased or sold for any Fund or Page 5 CODE OF ETHICS January 1, 2001 Client account or being actively considered for purchase or sale by any Fund or Client account; or o serve as director or officer of any publicly traded company (other than a Fund or Fleet Boston Financial Corporation.), except with the prior written approval of the Code Officer of each Covered Company of which the person is a board member, officer or employee (such approval generally will not be granted, and in any event will be granted only after consultation by the relevant Code Officer(s) with the Asset Management Group Senior Counsel of Fleet Boston Financial Corporation.). The Funds and the Liberty Companies expect all board members, officers and employees of each Covered Company to comply with the spirit of the Code, as well as the specific rules contained in the Code. The Funds and the Liberty Companies treat violations of this Code (including violations of the spirit of the Code) very seriously. If you violate either the letter or the spirit of this Code, the Funds or the Liberty Companies might impose penalties or fines, require disgorgement of trading gains, or remove or suspend you from your position with the Funds. If you are an employee of a Liberty Company, that Liberty Company might cut your compensation, demote you or suspend or terminate your employment. Improper trading activity can constitute a violation of this Code. But you can also violate this Code by failing to file required reports, or by making inaccurate or misleading reports or statements concerning trading activity or securities accounts. Your conduct can violate this Code, even if no Funds or Clients are harmed by your conduct. If you have any doubt or uncertainty about what this Code requires or permits, you should ask your Code Officer. Don't just guess at the answer. Page 6 CODE OF ETHICS January 1, 2001 PART II Prohibited Transactions and Activities For Access Persons and Investment Persons (A) Prohibition of Fraud, Deceit Etc. by Access Persons. - No Access Person of any Covered Company shall, in connection with the purchase or sale, directly or indirectly, by such person of a Covered Security held or to be acquired by a Fund or a Client account: o employ any device, scheme or artifice to defraud any Fund or Client; o make to any Fund or Client any untrue statement of a material fact or omit to state to a Fund or Client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; o engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any Fund or Client; or o engage in any manipulative practice with respect to any Fund or Client. For purposes of this prohibition, a "Covered Security held or to be acquired" by a Fund or a Client account means any Covered Security that, within the most recent 15 days (1) is or has been held by the Fund or the Client account or (2) is being or has been considered by the Fund or its adviser or subadviser for purchase or sale by the Fund, or by a Liberty Company for purchase by a Client account. (B) Prohibition on Trading Securities Being Purchased, Sold or Considered for a Fund or a Client Account - Except as permitted by Part II(C) of this Code, no Access Person of any Covered Company or member of such an Access Person's Family/Household shall purchase or sell, directly or indirectly, any Covered Security (or any option to purchase or sell such Covered Security, or any security convertible into or exchangeable for such Covered Security) in which such person had, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership and which he or she knows (or, in the case of transactions by an Access Person, such Access Person should have known) at the time of such purchase or sale: o is being considered for purchase or sale by a Fund or a Client account; or o is being purchased or sold by a Fund or a Client account. For purposes of this prohibition: o A Covered Security is "being considered for purchase or sale" by a Fund or a Client account when a recommendation to purchase or sell the security for the Fund or the Client account has been made and communicated or, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. o A Covered Security is "being purchased or sold" by a Fund or a Client account from the time when an instruction to purchase or sell the Covered Page 7 CODE OF ETHICS January 1, 2001 Security for the Fund or the Client account has been communicated to the person who places the buy or sell orders for the Fund or the Client account until the time when the purchase or sale transaction or program has been fully completed or terminated. o The Funds and the Liberty Companies recognize that, except in unusual circumstances, the Independent Trustees neither will know nor should know what Covered Securities are being purchased or sold (or being considered for purchase or sale) by the Funds. (C) Exceptions - The prohibitions of Part II(B) of this Code do not apply to the following transactions: 1. Purchases or sales of Covered Securities that are not eligible for purchase or sale by any Fund or Client account. 2. Purchases or sales that are non-volitional on the part of either the Access Person (or Family/Household member) or the Funds, including purchases or sales upon the exercise of puts or calls written by the Access Person (or Family/Household member), a Fund or a Client account and sales from a margin account pursuant to a bona fide margin call as long as no collateral was withdrawn from the margin account within 10 days before the call. 3. Purchases made solely under, and with the dividend proceeds received in, a dividend reinvestment plan. 4. Purchases by an employee of Covered Securities issued under an automatic payment or investment plan. 5. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of rights so acquired. 6. Transactions in accounts in which an Independent Trustee or Family/Household member has Beneficial Ownership that are being managed on a discretionary basis by an investment adviser, broker, bank, trust company or other manager (other than the Independent Trustee or a Family/Household member), if the Independent Trustee or Family/Household member had no prior knowledge of the transaction. 7. Transactions that the Fund Independent Trustees, after consideration of relevant facts and circumstances, determine not to have been fraudulent, deceptive or manipulative with respect to any Fund. (D) Preclearance - Access Persons of each Covered Company (other than Liberty Advisory Services Corp. and Liberty Asset Management Company), and members of their Family/Household, must preclear transactions in Covered Securities in which they have Beneficial Ownership, in accordance with any preclearance procedures in effect from time to time at the Liberty Company with which the Access Person is associated. Each Covered Company's preclearance procedures are considered part of that Covered Company's Code of Ethics. This preclearance requirement does not apply to: Page 8 CODE OF ETHICS January 1, 2001 o transactions by board members of a Fund but who are not Independent Trustees and are not officers, directors or employees of a Covered Company. o transactions in accounts that are being managed for a person's benefit on a discretionary basis by an investment adviser, broker, bank, trust company or other manager (other than the Access Person or a member of the Access Person's Family/Household) o transactions in options on securities indexes o transactions in options on currencies (E) Seven-Day Prohibition - No Investment Person (or Family/Household Member) may buy or sell a security for any account in which such person has Beneficial Ownership within seven calendar days before or after a Fund or a Client account that he or she manages, or provides information or advice to, or executes investment decisions for, trades in that security. Any related profits from such transaction may be disgorged as instructed by the relevant Liberty Company's Code Officer, and other sanctions may apply. NOTE 1: Each Investment Person must realize that to protect the Funds' and Clients' interests, and to avoid even the appearance of a conflict of interest, he or she may need to reverse a personal trade when a portfolio transaction for a Fund or Client account occurs within seven days, even if (i) the personal trade was made in good faith with preclearance, and (ii) the Investment Person was not personally responsible for making the transaction for the Fund or Client account. NOTE 2: The seven-day restriction DOES NOT APPLY to securities of an issuer that has a market capitalization of $5 billion or more at the time of the transaction; however, an Investment Person must preclear these trades as with any other personal trade. NOTE 3: In interpreting this provision, the Code Officer shall be guided by the then-current corporate organization and structure of the relevant Liberty Company in determining the relationship between an Investment Person and a Fund. NOTE 4: With the prior consent of the relevant Liberty Company's Code Officer, the seven-day restriction may not apply in instances where client transactions are non-discretionary in nature. (F) Purchase and Sale of Securities Within 60 Days - No Investment Person (or Family/Household Member) may profit from the purchase and sale or sale and purchase of the same (or equivalent) Securities within 60 calendar days. Any resulting profits may be disgorged as instructed by the relevant Liberty Company's Code Officer, and other sanctions may apply. NOTE 1: Investment Persons are reminded that their personal trades must not be detrimental to any Fund or Client account and that they may not structure any personal trade to profit from the market effect of any portfolio transaction for a Fund or Client account. Personal trades must be consistent with the normal investment practices of the individual involved and reflect an investment, rather than a trading, outlook. NOTE 2: The 60-day restriction does not apply to the exercise of options to purchase shares of Fleet Boston Financial Corporation. and the immediate sale of the same or identical shares, including so-called "cashless exercise" transactions. Page 9 CODE OF ETHICS January 1, 2001 NOTE 3: The 60-day restriction does not apply to involuntary transactions in securities (such as a sale triggered by a margin call or the exercise of a call option), including any sale out of a brokerage account resulting from a bona fide margin call as long as collateral was not withdrawn from such account within 10 days prior to the call; NOTE 4: The 60-day restriction applies on a "last in, first out basis"; an Investment Person (or Family/Household Member) may not buy and sell, or sell and buy, the same security within 60 days even though the specific shares may have been held longer than 60 days. NOTE 5: Purchase and sale transactions in the same security within 60 days that result in a loss to the Investment Person (or Family/Household Member) are not restricted. (G) Prohibition on Purchases of IPOs--No Access Person, nor any member of an Access Person's Family/Household, may acquire any Beneficial Ownership in any Covered Security in an initial public offering. (H) Prohibition on Purchases of Private Placements Without Advance Approval (Applies to Investment Persons Only)--If you are an Investment Person, neither you nor any member of your Family/Household may acquire any Beneficial Ownership in any Covered Security in a private placement, except with the specific, advance written approval of the Code Officer, which the Code Officer may deny for any reason. (I) Brokerage Accounts - No Access Person or members of an Access Person's Family/Household shall establish or maintain any brokerage account unless that person (1) promptly notifies the Code Officer of the Covered Company that employs that Access Person of the establishment of the account and (2) arranges with the brokerage firm to send duplicate copies of confirmations and all periodic account statements showing all account activity to that Code Officer. (J) Investment Clubs - No Access Person or member of an Access Person's Family/Household shall participate in any investment club without the prior written approval of the Code Officer of the Covered Company that employs that Access Person. If approval is granted, the Access Person will be treated, for purposes of this Code, as having Beneficial Ownership of all securities owned by the investment club. (K) Prohibitions on Advising Other Accounts - Except with prior written approval from the relevant Liberty Company's Code Officer, no Access Person may offer investment advice to or provide portfolio management assistance or services to anyone other than (1) client accounts that such Access Person manages as part of his or her assigned responsibilities at the Liberty Companies and (2) accounts in which such Access Person has Beneficial Ownership. Page 10 CODE OF ETHICS January 1, 2001 PART III Reporting Requirements These Apply to All Access Persons of Every Covered Company (including All Investment Persons and All Members of Every Covered Company's Board), Except That Independent Trustees Are Subject Only to Section 2(B) of This Part III ALSO: You must file the reports described below, even if you have no holdings, transactions or accounts to list in the reports. NOTE: One of the most complicated parts of complying with this Code is understanding what holdings, transactions and accounts you must report and what accounts are subject to trading restrictions. For example, accounts of certain members of your family and household are covered, as are certain categories of trust accounts, certain retirement accounts, certain investment pools in which you might participate, and certain accounts that others may be managing for you. To be sure you understand what holdings, transactions and accounts are covered, it is essential that you carefully review the definitions of Covered Security, Family/Household and Beneficial Ownership in the "Definitions" section at the end of this Code. 1. Initial Holdings Reports (Applies to Persons Who Become Access Persons After January 1, 2001). No later than 10 days after you become an Access Person, you must file with the Code Officer a Holdings Report on Form A (copies of all reporting forms are available from the Code Officer). If you are already an Access Person on the date this Code goes into effect (January 1, 2001), you do not have to file an Initial Holdings Report. Form A requires you to list all Covered Securities in which you (or members of your Family/Household) have Beneficial Ownership on the date you become an Access Person. It also requires you to list all brokers, dealers and banks where you maintained an account in which any securities (not just Covered Securities) were held for the direct or indirect benefit of you or a member of your Family/Household on the date you became an Access Person. Form A also requires you to confirm that you have read and understand this Code, that you understand that it applies to you and members of your Family/Household and that you understand that you are an Access Person and, if applicable, an Investment Person under the Code. 2. Quarterly Transaction Reports. A. For All Access Persons Except Independent Trustees: No later than 10 days after the end of March, June, September and December each year, you must file with the Code Officer a Quarterly Transactions Report on Form B. Form B requires you to list all transactions during the most recent calendar quarter in Covered Securities, in which transactions you (or a member of your Page 11 CODE OF ETHICS January 1, 2001 Family/Household) had Beneficial Ownership. It also requires you to list all brokers, dealers and banks where you or a member of your Family/Household established an account in which any securities (not just Covered Securities) were held during the quarter for the direct or indirect benefit of you or a member of your Family/Household. B. For Independent Trustees: If during any calendar quarter you or an account in which you or a Family/Household Member had Beneficial Ownership had a transaction in a Covered Security at a time when you knew, or in the ordinary course of fulfilling your duties as a Fund board member should have known, that on the day of the transaction or within 15 days before or after the transaction a purchase or sale of the same class of securities was made or being made for the Fund, then, within 10 days after the end of that quarter, you must file with the Code Officer of the Fund a Quarterly Transaction Report on Form B (Independent Trustees' Version). 3. Annual Holdings Reports. By January 30 of each year, you must file with the Code Officer an Annual Holdings Report on Form C. Form C requires you to list all Covered Securities in which you (or a member of your Family/Household) had Beneficial Ownership as of December 31 of the immediately preceding year. It also requires you to list all brokers, dealers and banks where you or a member of your Family/Household maintained an account in which any securities (not just Covered Securities) were held for the direct or indirect benefit of you or a member of your Family/Household on December 31 of the immediately preceding year. Form C also requires you to confirm that you have read and understand this Code, that you understand that it applies to you and members of your Family/Household and that you understand that you are an Access Person and, if applicable, an Investment Person under the Code. NOTE: Copies of all reporting forms are available from the Code Officer. Page 12 CODE OF ETHICS January 1, 2001 PART IV Definitions These terms have special meanings in this Code of Ethics: Access Person Beneficial Ownership Client Code Officer Covered Company Covered Security Family/Household Fund Independent Trustee Investment Person Liberty Company IMPORTANT: If you have any doubt or question about whether an investment, account or person is covered by any of these definitions, ask the Code Officer. Don't just guess at the answer. The special meanings of these terms as used in this Code of Ethics are explained below. Some of these terms (such as "beneficial ownership") are sometimes used in other contexts, not related to Codes of Ethics, where they have different meanings. For example, "beneficial ownership" has a different meaning in this Code of Ethics than it does in the SEC's rules for proxy statement disclosure of corporate directors' and officers' stockholdings, or in determining whether an investor has to file 13D or 13G reports with the SEC. In many cases, a person may have "beneficial ownership" for purposes of this Code of securities that the person is not considered to own beneficially for other purposes. Access Person of a Covered Company or other organization includes: Every member of the organization's board (except that a director of Liberty Funds Distributor, Inc. ("LFDI") is not considered an Access Person of LFDI unless, in the ordinary course of business, the director makes, participates in or obtains information regarding the purchase or sale of Covered Securities for a Fund for which LFDI is the distributor, or the officer's functions or duties in the ordinary course of business relate to the making of any recommendations to any such Fund regarding the purchase or sale of Covered Securities). Every officer of the organization (except that an officer of LFDI is not considered an Access Person of LFDI unless, in the ordinary course of business, the officer makes, participates in or obtains information regarding the purchase or sale of Covered Securities for a Fund for which LFDI is the distributor, or the officer's functions or duties in the ordinary course of business relate to the making of any recommendations to any such Fund regarding the purchase or sale of Covered Securities). Page 13 CODE OF ETHICS January 1, 2001 Every employee of the organization (or of any company that directly or indirectly has a 25% or greater interest in the organization) who, in connection with his or her regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of a Covered Security for any Fund or Client account, or whose functions relate to the making of any recommendations with respect to purchases or sales for any Fund or Client account. Any natural person in a control relationship to the organization who obtains information concerning recommendations made to any Fund or Client with regard to the purchase or sale of a Covered Security for such Fund or Client account. Beneficial Ownership means any opportunity, directly or indirectly, to profit or share in the profit from any transaction in securities. It also includes transactions over which a person exercises investment discretion (other than for a client of the Covered Company with which the person is associated), even if the person doesn't share in the profits of the transaction. Beneficial Ownership is a very broad concept. Some examples of forms of Beneficial Ownership include: o Securities held in a person's own name, or that are held for the person's benefit in nominee, custodial or "street name" accounts. o Securities owned by or for a partnership in which the person is a general partner (whether the ownership is under the name of that partner, another partner or the partnership or through a nominee, custodial or "street name" account). o Securities that are being managed for a person's benefit on a discretionary basis by an investment adviser, broker, bank, trust company or other manager, unless the securities are held in a "blind trust" or ------ similar arrangement under which the person is prohibited by contract from communicating with the manager of the account and the manager is prohibited from disclosing to the person what investments are held in the account. (Just putting securities into a discretionary account is not enough to remove them from a person's Beneficial Ownership. This is because, unless the account is a "blind trust" or similar arrangement, the owner of the account can still communicate with the manager about the account and potentially influence the manager's investment decisions.) o Securities in a person's individual retirement account. o Securities in a person's account in a 401(k) or similar retirement plan, even if the person has chosen to give someone else investment discretion over the account. o Securities owned by a trust of which the person is either a trustee or a beneficiary. o Securities owned by a corporation, partnership or other entity that the person controls (whether the ownership is under the name of that person, under the name of the entity or through a nominee, custodial or "street name" account). Page 14 CODE OF ETHICS January 1, 2001 This is not a complete list of the forms of ownership that could constitute Beneficial Ownership for purposes of this Code. You should ask the Code Officer if you have any questions or doubts at all about whether you or a member of your Family/Household would be considered to have Beneficial Ownership in any particular situation. Client means all non-Fund advisory and subadvisory clients of the Liberty Companies, and Client Account means assets managed by a Liberty Company as adviser or subadviser for a Client. Code Officer means, for each Covered Company, the person designated in Appendix B, as amended from time to time by the Asset Management Group Senior Counsel of Fleet Boston Financial Corporation. For purposes of reviewing a Code Officer's own transactions and reports under this Code, and in a Code Officer's absence, the functions of the Code Officer are performed by the Asset Management Group Senior Counsel of Fleet Boston Financial Corporation. (or by another person that the General Counsel designates). Covered Company means each organization listed in Appendix B to this Code, as amended from time to time by the Asset Management Group Senior Counsel of Fleet Boston Financial Corporation. Covered Security means anything that is considered a "security" under the Investment Company Act of 1940, except: Direct obligations of the U.S. Government. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. Shares of open-end investment companies that are registered under the Investment Company Act (mutual funds). This is a very broad definition of security. It includes most kinds of investment instruments, including things that you might not ordinarily think of as "securities," such as: Options on securities, on indexes and on currencies. Investments in all kinds of limited partnerships. Investments in foreign unit trusts and foreign mutual funds. Investments in private investment funds, hedge funds and investment clubs. If you have any question or doubt about whether an investment is a considered a security or a Covered Security under this Code, ask your Code Officer. Members of your Family/Household include: Your spouse (unless your spouse does not live in the same household as you and you do not contribute in any way to your spouse's support). Page 15 CODE OF ETHICS January 1, 2001 Your children under the age of 18. Your children who are 18 or older (unless they do not live in the same household as you do and you do not contribute in any way to their support). Any of these people who live in your household: your stepchildren, grandchildren, parents, stepparents, grandparents, brothers, sisters, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law and sisters-in-law, including adoptive relationships. See comment on page 15. Comment: There are a number of reasons why this Code covers transactions in which members of your Family/Household have Beneficial Ownership. First, the SEC regards any benefit to a person that you help support financially as indirectly benefiting you, because it could reduce the amount that you might otherwise contribute to that person's support. Second, members of your household could, in some circumstances, learn of information regarding the Liberty Companies' trading or recommendations for client accounts, and must not be allowed to benefit from that information. Fund means any registered investment company for which any Liberty Company acts as adviser, subadviser, principal underwriter or executing broker. Independent Trustee means a board member of any Fund who is not an "interested person" of the Funds under the Investment Company Act of 1940, and who is subject to this Code only because of being a board member of one or more Funds. If you are an Independent Trustee, you are subject to only these parts of the Code: Part I (General Principles) Part II (A) (Prohibition of Fraud, Etc.) Part II (B) (Prohibition on Trading Covered Securities Being Purchased, Sold or Considered for the Funds) (as limited by Part II(C))--but only as to transactions where you know (or should have known) that the Covered Security was being purchased or sold (or considered for purchase or sale) by a Fund. Part III 2(B) (Quarterly Transaction Reporting)--but only if, during the calendar quarter, you bought or sold a Covered Security and you knew (or, in the ordinary course of fulfilling your official duties as Fund board member, you should have known) that, during the 15-day period immediately before or after you purchased or sold the Covered Security: o a Fund of which you are a board member purchased or sold that Covered Security, or o the adviser or sub-advisers of a Fund of which you are a board member considered purchasing or selling that Covered Security for the Fund. Investment Person means any employee of a Liberty Company or an Unaffiliated Sub-Adviser (or of any company that directly or indirectly has a 25% or greater interest in a Page 16 CODE OF ETHICS January 1, 2001 Liberty Company or in an Unaffiliated Sub-Adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of any securities (even if they're not Covered Securities) for any Fund or Client account; and any natural person who directly or indirectly has a 25% or greater interest in a Liberty Company (or in an Unaffiliated Sub-Adviser) and who obtains information concerning recommendations made to any Fund or Client regarding the purchase or sale of any securities (even if they're not Covered Securities) by the Fund or Client. Liberty Company means each company (other than the Funds) listed in Appendix B to this Code, as amended from time to time by the Fleet Asset Management Group Senior Counsel. Page 17 CODE OF ETHICS January 1, 2001 Appendix A Standards for Fund Sub-Advisers That Want to Operate Under Their Own Codes of Ethics Every Sub-Adviser to any Fund is a Covered Company under this Code of Ethics, except for Sub-Advisers that operate under a separate Code of Ethics that (1) meets the requirements of Rule 17j-1 under the Investment Company Act, (2) has been submitted to the Board of Trustees of the relevant Fund(s) and (3) the Board of Trustees has determined is satisfactory (which determination the Board of Trustees may revoke at any time upon notice to such Sub-Adviser). Each Sub-Adviser that so operates under a separate Code shall o promptly report to the relevant Fund(s) in writing any material amendments to such Code; o promptly furnish to the relevant Fund(s) or Fleet Asset Management. upon request copies of any reports made pursuant to such Code by any Access Person of such Sub-Adviser; and o immediately furnish to the Funds and Fleet Asset Management without request, all material information regarding any violation of such Code by any Access Person of such Sub-Adviser who has any responsibilities with respect to the Sub-Adviser's provision of services to any Liberty Fund. Page 18 CODE OF ETHICS January 1, 2001 Appendix B List of Covered Companies, Code Officers and Persons Designated to Review and Approve Code Officer's Reports and Transactions Covered Company Code Officer Review Person for Code Officer's Reports/Transactions Crabbe Huson Group, Inc. Lori Morla Associate Director Compliance - Portland Newport Fund Management, Inc. Dee Gilbert Associate Director Compliance - Portland Newport Pacific Management, Inc. Liberty Asset Management Co. Liberty Advisory Services Corp. Liberty Funds Liberty Funds Group LLC AlphaTrade, Inc. Linda DiSilva Begley Fleet Chief Compliance Colonial Advisory Services, Inc. Officer Colonial Management Assoc. Liberty Funds Distributor, Inc. Stein Roe & Farnham Inc. Page 19 CODE OF ETHICS January 1, 2001 Appendix C Preclearance Procedures (Liberty Funds Group, Inc.) Access Persons must pre-clear and receive approval from the Compliance Officer (or his designee) prior to executing a transaction in a Covered Security (including both publicly traded and private placement securities). Once granted, pre-clearance approval is valid only until the close of business on the next business day (or, in the case of a private placement purchase; the closing of the private placement transaction). An order that is not executed within that time must be re-submitted for pre-clearance approval. All Access Persons must request pre-clearance approval by going through Outlook. The procedures are the following: [GRAPHIC OMITTED] Note: In the Preclearance Approval Request for Personal Transactions Form, most fields are required, you will not be able to send the request if all fields are not completed. 1- Select Tools on the top tool bar, then Forms, and choose pre-clearance forms. 2- Click on the form and click open or double click on the form. Fill out the form as requested. See picture on the right. 3- Initialize and click on the Send button on the upper left of the screen. The Compliance Department will process the request and you will be notified whether your request has been approved or denied via your inbox in Outlook. You may place the trade with your broker as soon as you receive an approval. To obtain pre-clearance while away from the office, Access Persons must contact one of the following individuals: Javier Fernandez, Code of Ethics Administrator at 617.772.3014 or Linda DiSilva Begley, Compliance Officer at 617.772.3177. The following information is required in order to successfully complete the pre-clearance: Name, account number, name on the account, security description, security symbol, cusip (if known), transaction type, and quantity. In submitting a proposed transaction for pre-clearance approval, the Access Person must certify that the proposed transaction complies with the requirements of this Code. However, because compliance with this Code may depend on subsequent investment activities for clients, pre-clearance approval of a transaction by Compliance does not necessarily mean the transaction complies with this Code. An Access Person may only trade through Securities accounts that he/she has previously reported to the Compliance Officer and for which the Compliance Officer receives duplicate confirmations and statements. Once an Access Person has been notified that a trade has been approved, it is that individual's responsibility to release the trade to the broker. Page 20 -----END PRIVACY-ENHANCED MESSAGE-----