-----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, QiCPlqXVllI+7jFjXyqkuh+ujN+TnvHCjSnO9dC9UfcBh1ichMl1thEP9mcGlOpo bdwuGQSSi/kSJVCZLRNodw== 0000950135-02-003249.txt : 20020703 0000950135-02-003249.hdr.sgml : 20020703 20020703160504 ACCESSION NUMBER: 0000950135-02-003249 CONFORMED SUBMISSION TYPE: N-14AE PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20020703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA SPECIAL FUND INC CENTRAL INDEX KEY: 0000773599 IRS NUMBER: 930896403 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14AE SEC ACT: 1933 Act SEC FILE NUMBER: 333-91934 FILM NUMBER: 02696466 BUSINESS ADDRESS: STREET 1: 1300 SW SIXTH AVE STREET 2: P O BOX 1350 CITY: PORTLAND STATE: OR ZIP: 97207 BUSINESS PHONE: 5032223600 MAIL ADDRESS: STREET 1: 1300 SW SIXTH AVE STREET 2: P O BOX 1350 CITY: PORTLAND STATE: OR ZIP: 92707 N-14AE 1 b43477lgnv14ae.txt COLUMBIA SPECIAL FUND, INC. As filed with the Securities and Exchange Commission on July 3, 2002 Registration No. 333-85020 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. ____ [ ] Post-Effective Amendment No. ___ (Check Appropriate Box or Boxes) Columbia Special Fund, Inc. (Exact Name of Registrant as Specified in Charter) 1301 S.W. Fifth Avenue, PO Box 1350, Portland, Oregon 97207 (Address of Principal Executive Offices) (503) 222-3600 (Area Code and Telephone Number) Jeff B. Curtis 1301 S.W. Fifth Avenue PO Box 1350 Portland, Oregon 97207 (Name and address of Agent for Service) Copies to: Robert J. Moorman, Esq. John M. Loder, Esq. Stoel Rives LLP Ropes & Gray 900 S.W. Fifth Avenue, Suite 2600 One International Place Portland, Oregon 97204 Boston, Massachusetts 02110 Title of Securities Being Registered: Class A, Class B, Class D, Class G, Class T and Class Z shares Approximate Date of Proposed Offering: As soon as practicable after this Registration Statement becomes effective. It is proposed that this filing will become effective on August 2, 2002 pursuant to Rule 488. COLUMBIA MANAGEMENT GROUP, INC. ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111-2621 Dear Shareholder: Your fund will hold a special meeting of shareholders on [October ], 2002, at [ ] (Eastern Time). At this meeting, you will be asked to vote on the proposed acquisition of your fund, which is one of a number of fund acquisitions recommended by Columbia Management Group, Inc. ("Columbia"), the new parent company of the investment advisors to the Liberty Funds, Stein Roe Funds, Galaxy Funds and Columbia Funds groups. Columbia's overall goal is proposing these fund mergers is two-fold. First, by merging funds with similar investment strategies, Columbia can create larger, more efficient funds. Second, by streamlining its investment product line, Columbia can concentrate its portfolio management and distribution resources on a more focused group of portfolios. The specific details and reasons for your fund's acquisition are contained in the enclosed Prospectus/Proxy Statement. Please read it carefully. If you have any questions, feel free to speak to one of our representatives at 800-426-3750. This special meeting will be held at Columbia's offices located at One Financial Center, Boston, Massachusetts. While we hope you can attend this meeting, it is very important that you vote your shares at your earliest convenience. Your fund has retained the services of PROXY ADVANTAGE, a division of PFPC, Inc., to assist shareholders with the voting process. As we get closer to [October ], shareholders who have not yet voted may receive a call from PROXY ADVANTAGE reminding them to exercise their right to vote. YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN VOTE EASILY AND QUICKLY BY MAIL, BY PHONE, BY INTERNET OR IN PERSON. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY! Again, if you have any questions regarding the combined Prospectus/Proxy Statement, please call us at 800-426-3750. We appreciate your participation and prompt response in these matters and thank you for your continued support. Sincerely, Keith T. Banks President Columbia Management Group, Inc. [August ], 2002 [Job Code] NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD [OCTOBER __], 2002 THE GALAXY FUND GALAXY GROWTH FUND II NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of the Galaxy Growth Fund II will be held at 2:00 p.m. Eastern Time on Friday, [October __], 2002, at the offices of Columbia Management Group, Inc., the parent of the Galaxy Growth Fund II's advisor, One Financial Center, Boston, Massachusetts 02111-2621, for these purposes: 1. To approve an Agreement and Plan of Reorganization providing for the sale of all of the assets of the Galaxy Growth Fund II to, and the assumption of all of the liabilities of the Galaxy Growth Fund II by, the Columbia Special Fund, Inc. in exchange for shares of the Columbia Special Fund, Inc. and the distribution of such shares to the shareholders of the Galaxy Growth Fund II in complete liquidation of the Galaxy Growth Fund II. 2. To consider and act upon any other matters that properly come before the meeting and any adjourned session of the meeting. Shareholders of record at the close of business on [August 2], 2002, are entitled to notice of and to vote at the meeting and any adjourned session. By order of the Board of Trustees, W. Bruce McConnel, Secretary [August ___], 2002 NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN VOTE EASILY AND QUICKLY BY PHONE, BY MAIL, BY INTERNET OR IN PERSON. SEE ENCLOSED PROXY INSERT FOR INSTRUCTIONS. PLEASE HELP THE GALAXY GROWTH FUND II AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY! NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD [OCTOBER __], 2002 LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST STEIN ROE CAPITAL OPPORTUNITIES FUND LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST LIBERTY MIDCAP GROWTH FUND NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of the Stein Roe Capital Opportunities Fund and the Liberty Midcap Growth Fund will be held at [___] Eastern Time on Friday, [October __], 2002, at the offices of Columbia Management Group, Inc., the parent of the Stein Roe Capital Opportunities Fund's and the Liberty Midcap Growth Fund's advisor, One Financial Center, Boston, Massachusetts 02111-2621, for these purposes: 1. To approve an Agreement and Plan of Reorganization providing for the sale of all of the assets of the Stein Roe Capital Opportunities Fund to, and the assumption of all of the liabilities of the Stein Roe Capital Opportunities Fund by, the Columbia Special Fund, Inc. in exchange for shares of the Columbia Special Fund, Inc. and the distribution of such shares to the shareholders of the Stein Roe Capital Opportunities Fund in complete liquidation of the Stein Roe Capital Opportunities Fund. 2. To approve an Agreement and Plan of Reorganization providing for the sale of all of the assets of the Liberty Midcap Growth Fund to, and the assumption of all of the liabilities of the Liberty Midcap Growth Fund by, the Columbia Special Fund, Inc. in exchange for shares of the Columbia Special Fund, Inc. and the distribution of such shares to the shareholders of the Liberty Midcap Growth Fund in complete liquidation of the Liberty Midcap Growth Fund. 3. To consider and act upon any other matters that properly come before the meeting and any adjourned session of the meeting. Shareholders of record at the close of business on [August 2], 2002, are entitled to notice of and to vote at the meeting and any adjourned session. By order of the Board of Trustees, Jean S. Loewenberg, Secretary [August ___], 2002 NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN VOTE EASILY AND QUICKLY BY PHONE, BY MAIL, BY INTERNET OR IN PERSON. SEE ENCLOSED PROXY INSERT FOR INSTRUCTIONS. PLEASE HELP THE STEIN ROE CAPITAL OPPORTUNITIES FUND AND THE LIBERTY MIDCAP GROWTH FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY! COMBINED PROSPECTUS AND PROXY STATEMENT [AUGUST ], 2002 ACQUISITION OF THE ASSETS AND LIABILITIES OF EACH OF GALAXY GROWTH FUND II c/o The Galaxy Fund 4400 Computer Drive Westborough, Massachusetts 01581-5108 1-877-289-4252 AND STEIN ROE CAPITAL OPPORTUNITIES FUND (INCLUDING CLASS S AND LIBERTY CAPITAL OPPORTUNITIES FUND, CLASS A) c/o Liberty-Stein Roe Funds Investment Trust One Financial Center Boston, Massachusetts 02111 1-800-338-2550 AND LIBERTY MIDCAP GROWTH FUND (INCLUDING CLASSES A, B, C AND Z AND STEIN ROE MIDCAP GROWTH FUND, CLASS S) c/o Liberty-Stein Roe Funds Investment Trust One Financial Center Boston, Massachusetts 02111 1-800-338-2550 BY AND IN EXCHANGE FOR SHARES OF COLUMBIA SPECIAL FUND, INC. c/o Columbia Funds 1301 S.W. Fifth Avenue Portland, Oregon 97201 TABLE OF CONTENTS QUESTIONS AND ANSWERS....................................... 5 PROPOSAL 1 -- Acquisition of the Galaxy Growth Fund II by the Columbia Special Fund, Inc................ 17 The Proposal.............................................. 17 Principal Investment Risks................................ 17 Information about the Acquisition......................... 17 PROPOSAL 2 -- Acquisition of the Stein Roe Capital Opportunities Fund by the Columbia Special Fund, Inc..................................... 22 The Proposal.............................................. 22 Principal Investment Risks................................ 22 Information about the Acquisition......................... 22 PROPOSAL 3 -- Acquisition of the Liberty Midcap Growth Fund by the Columbia Special Fund, Inc............. 27 The Proposal.............................................. 27 Principal Investment Risks................................ 27 Information about the Acquisition......................... 27 INFORMATION APPLICABLE TO PROPOSALS 1, 2 AND 3.............. 32 General................................................... 32 Terms of the Agreement and Plan of Reorganization......... 32 Federal Income Tax Consequences........................... 33
1 GENERAL..................................................... 34 Voting Information........................................ 34 Appendix A -- Form of Agreement and Plan of Reorganization Relating to the Acquisition of the Galaxy Growth Fund II................................ A-1 Appendix B -- Form of Agreement and Plan of Reorganization Relating to the Acquisition of the Stein Roe Capital Opportunities Fund.................... B-1 Appendix C -- Form of Agreement and Plan of Reorganization Relating to the Acquisition of the Liberty Midcap Growth Fund............................ C-1 Appendix D -- Fund Information.............................. D-1 Appendix E -- Capitalization................................ E-1 Appendix F -- Management's Discussion of Fund Performance as of December 31, 2001 -- Columbia Special Fund, Inc........................................... F-1 Appendix G -- Information Applicable to Merger Shares....... G-1 Appendix H -- Comparison of Differences between a Massachusetts Business Trust and an Oregon Corporation................................... H-1
This combined Prospectus/Proxy Statement contains information you should know before voting on the Agreement and Plan of Reorganization relating to the proposed acquisition of the Galaxy Growth Fund II (the "Galaxy Growth Fund II"), the Agreement and Plan of Reorganization relating to the proposed acquisition of the Stein Roe Capital Opportunities Fund (including Class S and Liberty Capital Opportunities Fund, Class A) (the "Capital Opportunities Fund") or the Agreement and Plan of Reorganization relating to the proposed acquisition of the Liberty Midcap Growth Fund (including Classes A, B, C and Z and Stein Roe Midcap Growth Fund, Class S) (the "Midcap Growth Fund") (each an "Acquired Fund" and collectively, the "Acquired Funds") by the Columbia Special Fund, Inc. (the "Special Fund" and together with the Acquired Funds, the "Funds") (each an "Acquisition" and together, the "Acquisitions") at a Special Meeting of Shareholders of each Acquired Fund (the "Meeting"), which will be held at [ ] Eastern Time on [October ], 2002, at the offices of Columbia Management Group, Inc. ("Columbia"), One Financial Center, Boston, Massachusetts 02111. The Funds are each registered open-end management investment companies. Please read this Prospectus/Proxy Statement and keep it for future reference. Proposal 1 in this Prospectus/Proxy Statement relates to the proposed acquisition of the Galaxy Growth Fund II by the Special Fund. Proposal 2 in this Prospectus/Proxy Statement relates to the proposed acquisition of the Capital Opportunities Fund by the Special Fund. Proposal 3 in this Prospectus/Proxy Statement relates to the proposed acquisition of the Midcap Growth Fund by the Special Fund. If the Acquisition of your Acquired Fund occurs, you will become a shareholder of the Special Fund. The Special Fund seeks significant capital appreciation. If the Agreement and Plan of Reorganization relating to your Acquired Fund is approved by the shareholders of your Acquired Fund and the related Acquisition occurs, your Acquired Fund will transfer all of the assets and liabilities attributable to each class of its shares to the Special Fund in exchange for shares of the class of the Special Fund noted in the table below with the same aggregate net asset value as the net value of the assets and liabilities transferred (the "Merger Shares"). After that exchange, shares of each class received by each Acquired Fund will be distributed pro rata to such Acquired Fund's shareholders of the corresponding class.
YOUR SHARES MERGER SHARES - ----------- ------------- GALAXY GROWTH FUND II Retail A.................................................. Class T Retail B.................................................. Class G Trust..................................................... Class Z CAPITAL OPPORTUNITIES FUND Class S................................................... Class Z Class A................................................... Class A
2
YOUR SHARES MERGER SHARES - ----------- ------------- MIDCAP GROWTH FUND Class A................................................... Class A Class B................................................... Class B Class C................................................... Class D Class S................................................... Class Z Class Z................................................... Class Z
If you are a shareholder of the Galaxy Growth Fund II, you are being asked to vote on Proposal 1 in this Prospectus/Proxy Statement. Please review this Proposal carefully, as well as the section "Information Applicable to Proposals 1, 2 and 3." If you are a shareholder of the Capital Opportunities Fund, you are being asked to vote on Proposal 2 in this Prospectus/Proxy Statement. Please review this Proposal carefully, as well as the section "Information Applicable to Proposals 1, 2 and 3." If you are a shareholder of the Midcap Growth Fund, you are being asked to vote on Proposal 3 in this Prospectus/Proxy Statement. Please review this Proposal carefully, as well as the section "Information Applicable to Proposals 1, 2 and 3." Please review the enclosed Prospectus of the Special Fund. This document is incorporated in this Prospectus/Proxy Statement by reference. The following documents have been filed with the Securities and Exchange Commission (the "SEC") and are also incorporated in this Prospectus/Proxy Statement by reference: For the Galaxy Growth Fund II, the Capital Opportunities Fund and the Midcap Growth Fund: - The Statement of Additional Information of the Special Fund dated [August ], 2002, relating to the Acquisitions. For the Galaxy Growth Fund II: - The Prospectus of the Galaxy Growth Fund II dated February 28, 2002[, as supplemented on ]. - The Statement of Additional Information of the Galaxy Growth Fund II dated February 28, 2002[, as supplemented on ]. - Management's discussion of Fund performance, the Report of Independent Auditors and the financial statements included in the Annual Report to Shareholders of the Galaxy Growth Fund II dated October 31, 2001. - The financial statements included in the Semi-Annual Report to Shareholders of the Galaxy Growth Fund II dated April 30, 2002. For the Capital Opportunities Fund: - The Prospectuses of the Capital Opportunities Fund dated February 1, 2002[, as supplemented on ]. - The Statements of Additional Information of the Capital Opportunities Fund dated February 1, 2002[, as supplemented on ]. - Management's discussion of Fund performance, the Reports of Independent Accountants and the financial statements included in the Annual Reports to Shareholders of the Capital Opportunities Fund dated September 30, 2001. - The financial statements included in the Semi-Annual Reports to Shareholders of the Capital Opportunities Fund dated March 31, 2002. 3 For the Midcap Growth Fund: - The Prospectuses of the Midcap Growth Fund dated February 1, 2002[, as supplemented on ]. - The Statements of Additional Information of the Midcap Growth Fund dated February 1, 2002[, as supplemented on ]. - Management's discussion of Fund performance, the Reports of Independent Accountants and the financial statements included in the Annual Reports to Shareholders of the Midcap Growth Fund dated September 30, 2001. - The financial statements included in the Semi-Annual Reports to Shareholders of the Midcap Growth Fund dated March 31, 2002. Each Acquired Fund has previously sent an Annual Report and a Semi-Annual Report to its shareholders. For a free copy of these Reports or any of the documents listed above, you may call or write to your Fund at the telephone number and address listed on the cover of this Prospectus/Proxy Statement. You may also obtain many of these documents by accessing the Internet site for your Fund at www.galaxyfunds.com, www.steinroe.com, www.libertyfunds.com or www.columbiafunds.com. Hearing impaired shareholders of the Capital Opportunities Fund and the Midcap Growth Fund may call Liberty Funds Services, Inc. at 1-800-528-6979 with special TDD equipment. Hearing impaired shareholders of the Galaxy Growth Fund II may call 1-800-696-6515 with special TTD equipment. Text-only versions of all the Galaxy Growth Fund II, Capital Opportunities Fund, Midcap Growth Fund and Special Fund documents can be viewed online or downloaded from the EDGAR database on the SEC's Internet site at www.sec.gov. You can review and copy information about the Funds by visiting the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549-0102, or the regional offices of the SEC located at 233 Broadway, New York, NY 10279, and 175 W. Jackson Boulevard, Suite 900, Chicago, IL 60604. You can obtain copies, upon payment of a duplicating fee, by sending an e-mail request to publicinfo@sec.gov or by writing the Public Reference Room at the Washington, DC address above. Information on the operation of the Public Reference Room may be obtained by calling 202-942-8090. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 4 QUESTIONS AND ANSWERS THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE ACQUISITIONS AND OF THE INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT. PLEASE REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING YOUR VOTE. 1. WHAT IS BEING PROPOSED? The Trustees of The Galaxy Fund are recommending in Proposal 1 that the Special Fund acquire the Galaxy Growth Fund II; the Trustees of Liberty-Stein Roe Funds Investment Trust (the "Investment Trust") are recommending in Proposal 2 that the Special Fund acquire the Capital Opportunities Fund; and the Trustees of the Investment Trust are recommending in Proposal 3 that the Special Fund acquire the Midcap Growth Fund. This means that the Special Fund would acquire all of the assets and liabilities of the Galaxy Growth Fund II, the Capital Opportunities Fund and the Midcap Growth Fund in exchange for the Merger Shares. If the Acquisition relating to your Acquired Fund is approved, you will receive shares of the Special Fund with an aggregate net asset value equal to the aggregate net asset value of your Acquired Fund shares as of the business day before the closing of your Acquired Fund's Acquisition. The Acquisitions are currently scheduled to take place on or around [ ], 2002. Note that the closing of each Acquisition is not conditioned on the closing of the other Acquisitions proposed in this Prospectus/Proxy Statement. Accordingly, in the event that the shareholders of one of the Acquired Funds approve their Fund's Acquisition, it is expected that the approved Acquisition will, subject to the terms of the Agreement and Plan of Reorganization, take place as described in this Prospectus/Proxy Statement, even if the shareholders of either of the other Acquired Funds have not approved their Fund's Acquisition. The Special Fund, and each fund in the Columbia Funds family, is organized as an Oregon corporation with a single class of shares. The Special Fund is currently seeking shareholder approval of an amendment to its Articles of Incorporation that would permit the Fund to adopt a multi-class structure, as contemplated herein. Please note that the Trustees of the Investment Trust have approved the liquidation of the Midcap Growth Fund in the event that its shareholders do not approve the Acquisition. 2. WHY ARE THE ACQUISITIONS BEING PROPOSED? The Trustees of The Galaxy Fund and the Investment Trust recommend approval of the Acquisitions because they offer shareholders of the Acquired Funds an investment in a larger fund (allowing the potential for more efficient operation by spreading relatively fixed costs, such as audit and legal fees, over a larger asset base) with an investment goal and strategies generally similar to those of the Acquired Funds. In reviewing the Acquisitions, the Trustees also considered the following matters: For the Galaxy Growth Fund II, - based on estimated expense ratios as of March 31, 2002, Retail A and Retail B shareholders are expected to experience a decrease in expenses and, although Trust shareholders are expected to experience an increase in gross expenses (expenses before reduction by the voluntary fee waiver described in footnote 12 to the Annual Fund Operating Expenses table below), they are not expected to experience a change in net expenses (expenses after reduction by such voluntary waiver); and - the Acquisition is expected to be tax-free for shareholders of the Galaxy Growth Fund II who choose to remain shareholders of the Special Fund. For the Capital Opportunities Fund, - based on estimated expense ratios as of March 31, 2002, Class S shareholders of the Capital Opportunities Fund are expected to experience a decrease in expenses and, although Class A shareholders are expected to experience an increase in gross expenses (expenses before reduction by the voluntary fee waiver described in footnotes 9 and 12 to the Annual Fund Operating Expenses table 5 below), they are not expected to experience a change in net expenses (expenses after reduction by such voluntary waiver); - shareholders of the Capital Opportunities Fund will move into a fund with a better long-term historic performance record; and - the Acquisition is expected to be tax-free for shareholders of the Capital Opportunities Fund who choose to remain shareholders of the Special Fund. For the Midcap Growth Fund, - because the Midcap Growth Fund is too small to be economically viable without fee waivers and expense reimbursements, and has been unable to achieve meaningful sales growth that over time could reduce Fund expenses, the Trustees of the Investment Trust have approved the liquidation of the Midcap Growth Fund in the event that its shareholders do not approve the Acquisition; - based on estimated expense ratios as of March 31, 3002, Class A, Class S and Class Z shareholders are expected to experience a decrease in expenses and Class B and Class C shareholders are expected to experience a decrease in gross expenses (expenses before reduction by the voluntary fee waiver described in footnotes 10 and 12 to the Annual Fund Operating Expenses table below), while their net expenses (expenses after reduction by such voluntary waiver) are not expected to change; - shareholders of the Liberty Midcap Growth Fund will move into a fund with better historic performance; and - the Acquisition is expected to be tax-free for shareholders of the Midcap Growth Fund who choose to remain shareholders of the Special Fund, while liquidation would be a realization event for tax purposes. Please review "Reasons for the Acquisition" in the Proposal relating to your Fund's Acquisition for more information regarding the factors considered by the Trustees. 3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE THEY ESTIMATED TO BE FOLLOWING THE ACQUISITIONS? The following tables allow you to compare the sales charges and management fees and expenses of the Galaxy Growth Fund II, the Capital Opportunities Fund, the Midcap Growth Fund and the Special Fund, and to analyze the estimated expenses that Columbia expects the combined fund to bear in the first year following the Acquisitions. The shareholder fees presented below for the Special Fund apply both before and after giving effect to the Acquisitions. Sales charges, if applicable, are paid directly by shareholders to Liberty Funds Distributor, Inc. ("LFDI"). Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees (if applicable) and administrative costs, including pricing and custody services. The Annual Fund Operating Expenses shown in the table below represent expenses for the Galaxy Growth Fund II for its last fiscal year (ended October 31, 2001), each of the Capital Opportunities Fund and the Midcap Growth Fund for its last fiscal year (ended September 30, 2001) and the Special Fund for its last fiscal year (ended December 31, 2001) (for Class A, B, D, G and T shares of the Special Fund, expenses shown are estimates based on the expenses of the existing shares of the Special Fund for its last fiscal year) and those expected to be incurred by the combined fund, assuming all three Acquisitions are consummated and giving effect thereto, on a pro forma basis (based on pro forma combined net assets as of March 31, 2002). In addition, following the presentation of that detailed information, Annual Fund Operating Expenses and Example Expenses are presented on a pro forma combined basis for each possible scenario in which the Special Fund acquires one or two, but not all three, of the Acquired Funds. Shareholders of the Acquired Funds will not pay additional sales charges as a result of the Acquisitions, although contingent deferred sales charges ("CDSCs") will continue to apply. BASED ON ESTIMATED EXPENSE RATIOS AS OF MARCH 31, 2002, NET EXPENSES OF EACH CLASS OF MERGER SHARES ARE EXPECTED TO BE EQUAL TO OR LOWER THAN THE NET EXPENSES OF THE CORRESPONDING CLASS OF SHARES OF THE CAPITAL OPPORTUNITIES FUND AND RETAIL A, RETAIL B AND TRUST SHARES OF THE GALAXY GROWTH FUND II. 6 SHAREHOLDER FEES (paid directly from your investment)
CAPITAL GALAXY GROWTH FUND II(1) OPPORTUNITIES FUND ------------------------ ------------------ RETAIL A RETAIL B TRUST CLASS A(1) CLASS S Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 0.00 0.00 5.75 0.00 - ----------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 5.00(2) 0.00 1.00(3) 0.00 - ----------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (4) (4) (4) (4) (5)
MIDCAP GROWTH FUND(1) --------------------- CLASS A CLASS B CLASS C CLASS Z CLASS S Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 0.00 0.00 0.00 0.00 - ---------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(3) 5.00 1.00 0.00 0.00 - ---------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (4) (4) (4) (4) (5)
SPECIAL FUND(1)(6) ------------------ EXISTING CLASS T CLASS G CLASS A CLASS B CLASS D SHARES Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 0.00 5.75 0.00 1.00 0.00 - ------------------------------------------------------------------------------------------------------ Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(3) 5.00 1.00(3) 5.00 1.00 0.00 - ------------------------------------------------------------------------------------------------------ Redemption fee (%) (as a percentage of amount redeemed, if applicable) (4) (4) (4) (4) (4) (4)
- --------------- (1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. This fee will apply to shares of the Special Fund after the Acquisitions. (2) This charge applies to Retail B shares sold in the first year after purchase and gradually declines to 1% in the sixth year after purchase if you purchased Retail B shares prior to January 1, 2001, or in the seventh year after purchase if you purchased Retail B shares on or after January 1, 2001. (3) This charge applies only to Class A shares and Class T shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase and that are sold within 18 months (12 months for Class T shares) of purchase. Subsequent Class A and Class T share purchases that bring your account value above $1 million are subject to this charge if sold within 18 months (12 months for Class T shares) of the date of purchase. (4) There is a $7.50 charge for wiring redemption proceeds to your bank. This charge will apply to existing shares that are redesignated Class Z shares at the time of the Acquisitions. (5) There is a $7 charge for wiring redemption proceeds to your bank. A fee of $5 per quarter may be charged to accounts that fall below the required minimum balance. (6) The Special Fund is offering new classes of shares, Class A, Class B, Class D, Class G and Class T shares, in connection with the Acquisitions. Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. 7 ANNUAL FUND OPERATING EXPENSES (deducted directly from Fund assets)
CAPITAL OPPORTUNITIES FUND (FOR THE FISCAL GALAXY GROWTH FUND II YEAR ENDED (FOR THE FISCAL YEAR ENDED SEPTEMBER 30, OCTOBER 31, 2001) 2001) -------------------------- --------------- RETAIL A RETAIL B TRUST CLASS A CLASS S Management fee(7) (%) 0.75 0.75 0.75 0.90 0.90 - ------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 0.95(8) 0.00 0.35(9) 0.00 - ------------------------------------------------------------------------------------------------------- Other expenses (%) 0.70 0.76 0.25 0.31 0.31 - ------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.45 2.46 1.00 1.56 1.21
MIDCAP GROWTH FUND (FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001) ---------------------------------------------- CLASS A CLASS B CLASS C CLASS Z CLASS S Management fee(7)(10) (%) 0.90 0.90 0.90 0.90 0.90 - ---------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees(9) (%) 0.35(10) 1.00 1.00 0.00 0.00 - ---------------------------------------------------------------------------------------------------- Other expenses (%) 0.79 0.79 0.79 0.79 0.79 - ---------------------------------------------------------------------------------------------------- Total annual fund operating expenses(10) (%) 2.04 2.69 2.69 1.69 1.69
SPECIAL FUND (FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001)(11) ------------------------------------------------- EXISTING CLASS T CLASS G CLASS A CLASS B CLASS D SHARES Management fee (%) 0.89 0.89 0.89 0.89 0.89 0.89 - ------------------------------------------------------------------------------------------------------ Distribution and service (12b-1) fees(13) (%) 0.00 0.95 0.35 1.00 1.00 0.00 - ------------------------------------------------------------------------------------------------------ Other expenses(11) (%) 0.49 0.19 0.19 0.19 0.19 0.19 - ------------------------------------------------------------------------------------------------------ Total annual fund operating expenses (%) 1.38 2.03 1.43 2.08 2.08 1.08
SPECIAL FUND (PRO FORMA COMBINED)(11) ------------------------------------- CLASS T CLASS G CLASS A CLASS B CLASS D CLASS Z Management fee(12) (%) 0.86 0.86 0.86 0.86 0.86 0.86 - ----------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees(13) (%) 0.00 0.95 0.35 1.00 1.00 0.00 - ----------------------------------------------------------------------------------------------------- Other expenses(11) (12) ) (%) 0.52 0.47 0.32 0.51 0.48 0.21 - ----------------------------------------------------------------------------------------------------- Total annual fund operating expenses(12) (%) 1.38 2.28 1.53 2.37 2.34 1.07
- --------------- (7) Each of the Capital Opportunities Fund and the Midcap Growth Fund paid a management fee of 0.75% and an administrative fee of 0.15%. (8) The Galaxy Growth Fund II has adopted a plan under Rule 12b-1 to permit it to pay distribution and service fees up to a maximum of 1.15% of the Fund's average daily net assets attributable to Retail B shares, but will limit such fees to an aggregate fee of not more than 0.95% during the current fiscal year. The 12b-1 fee is comprised of up to 0.65% for distribution services, up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services. (9) The Capital Opportunities Fund and the Midcap Growth Fund have adopted plans under Rule 12b-1 that permit them to pay the Funds' distributor marketing and other fees to support the sale and distribution of Class A, Class B and Class C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for each of Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.10% for Class A shares and up to 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. 8 The Capital Opportunities Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class A shares. If this waiver were reflected in the table, the 12b-1 fee shown for Class A shares would be 0.25% and total annual fund operating expenses shown for Class A shares would be 1.46%. This arrangement may be modified or terminated by the distributor at any time. (10) The Midcap Growth Fund's advisor has voluntarily agreed to waive advisory fees and reimburse the Fund for certain expenses so that the total annual fund operating expenses (exclusive of distribution and service fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 1.25%. The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class A shares. If these waivers and reimbursements were reflected in the table, the management fee shown for each share class would be 0.46%, the 12b-1 fee shown for Class A shares would be 0.25% and total annual fund operating expenses shown for Class A, Class B, Class C, Class S and Class Z shares would be 1.50%, 2.25%, 2.25%, 1.25% and 1.25%, respectively. These arrangements may be modified or terminated by the advisor or distributor at any time. (11) The Special Fund is offering new classes of shares, Class A, Class B, Class D, Class G and Class T shares, in connection with the Acquisitions. Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. "Other expenses" for Class A, Class B, Class D, Class G and Class T shares are estimated based on actual expenses of the existing shares of the Special Fund. (12) In connection with the Acquisitions, the Special Fund's advisor has indicated that it will voluntarily waive 0.01%, 0.12%, 0.09% and 0.05% of transfer agency fees related to Class A, Class B, Class D, and Class Z shares. If these waivers were reflected in the table, total annual fund operating expenses shown for Class A, Class B, Class D, and Class Z shares would be 1,42%, 2.25%, 2.25%, and 1.02%, respectively, including the 12b-1 fee waiver for Class A shares described in footnote 13. The advisor has agreed to keep these arrangements in place for one year from the date of the Acquisitions. Thereafter, these arrangements may be modified or terminated by the advisor at any time. (13) In connection with the Acquisitions, the Special Fund will adopt 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, Class B, Class D and Class G shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for each of Class A, Class B and Class D shares. The annual distribution fee may equal up to 0.10% for Class A shares and up to 0.75% for Class B and Class D shares. Distribution and service fees are paid out of the assets of these classes. With respect to Class G shares, the Fund may charge up to a maximum of 1.15% of the Fund's average daily net assets attributable to Class G shares, but will limit such fees to an aggregate fee of not more than 0.95%. The 12b-1 fee for Class G shares is comprised of up to 0.65% for distribution services, up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services. The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class A shares. If this waiver were reflected in the table, the 12b-1 fee shown for Class A shares would be 0.25% and total annual fund operating expenses would be 1.42%. The number of Acquisitions that occur will affect the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis after the Acquisitions. The tables below present the pro forma combined total Annual Fund Operating Expenses assuming in each case that only one or two, but not all three, of the Acquired Funds approve the Acquisition. In each case, "other expenses" for Class A, Class B, Class D, Class G and Class T shares of the Special Fund have been estimated based on the annual operating expenses of the existing shares of the Special Fund. If only the Acquisition of the Galaxy Growth Fund II were to occur, the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis would be as follows:
SPECIAL FUND (PRO FORMA COMBINED) -------------------- CLASS T CLASS G CLASS Z Management fee (%) 0.90 0.90 0.90 - ------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 0.95 0.00 - ------------------------------------------------------------------------------------------- Other expenses (%) 0.51 0.46 0.20 - ------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.41 2.31 1.10
If only the Acquisition of the Capital Opportunities Fund were to occur, the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis would be as follows:
SPECIAL FUND (PRO FORMA COMBINED) -------------------- CLASS A CLASS Z Management fee (%) 0.87 0.87 - ------------------------------------------------------------------------------------ Distribution and service (12b-1) fees (%) 0.35 0.00 - ------------------------------------------------------------------------------------ Other expenses (%) 0.18 0.21 - ------------------------------------------------------------------------------------ Total annual fund operating expenses (%) 1.40 1.08
9 If only the Acquisition of the Midcap Growth Fund were to occur, the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis would be as follows:
SPECIAL FUND (PRO FORMA COMBINED) --------------------------------- CLASS A CLASS B CLASS D CLASS Z Management fee (%) 0.91 0.91 0.91 0.91 - -------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.35 1.00 1.00 0.00 - -------------------------------------------------------------------------------------------------- Other expenses (%) 0.30 0.50 0.47 0.21 - -------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.56 2.41 2.38 1.12
If only the Acquisitions of the Galaxy Growth Fund II and the Capital Opportunities Fund were to occur, the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis would be as follows:
CLASS T CLASS G CLASS A CLASS Z Management fee (%) 0.86 0.86 0.86 0.86 - -------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 0.95 0.35 0.00 - -------------------------------------------------------------------------------------------------- Other expenses (%) 0.52 0.47 0.19 0.20 - -------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.38 2.28 1.40 1.06
If only the Acquisitions of the Galaxy Growth Fund II and the Midcap Growth Fund were to occur, the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis would be as follows:
SPECIAL FUND (PRO FORMA COMBINED) --------------------------------- CLASS T CLASS G CLASS A CLASS B CLASS D CLASS Z Management fee (%) 0.89 0.89 0.89 0.89 0.89 0.89 - ----------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 0.95 0.35 1.00 1.00 0.00 - ----------------------------------------------------------------------------------------------------- Other expenses (%) 0.52 0.47 0.31 0.51 0.48 0.21 - ----------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.41 2.31 1.55 2.40 2.37 1.10
If only the Acquisitions of the Capital Opportunities Fund and the Midcap Growth Fund were to occur, the total Annual Fund Operating Expenses of the Special Fund on a pro forma combined basis would be as follows:
SPECIAL FUND (PRO FORMA COMBINED) --------------------------------- CLASS A CLASS B CLASS D CLASS Z Management fee (%) 0.87 0.87 0.87 0.87 - -------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.35 1.00 1.00 0.00 - -------------------------------------------------------------------------------------------------- Other expenses (%) 0.32 0.51 0.48 0.21 - -------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.54 2.38 2.35 1.08
EXAMPLE EXPENSES Example Expenses help you compare the cost of investing in your Acquired Fund and the Special Fund currently with the cost of investing in the combined fund on a pro forma basis and also allow you to compare these costs with the cost of investing in other mutual funds. Your actual costs may be higher or lower. The following hypothetical conditions were used in performing the calculations: - $10,000 initial investment - 5% total return for each year 10 - Each Fund's operating expenses remain the same - Reinvestment of all dividends and distributions - Class B shares convert to Class A shares after eight years - Retail B shares of the Galaxy Growth Fund II purchased prior to January 1, 2001 convert to Retail A shares after six years, and Retail B shares purchased on or after January 1, 2001 convert to Retail A shares after eight years
1 YEAR 3 YEARS 5 YEARS 10 YEARS GALAXY GROWTH FUND II Retail A: did not sell your shares $714 $1,007 $1,322 $2,210 - -------------------------------------------------------------------------------------------------- Retail B*: did not sell your shares $249 $ 767 $1,311 $2,317 sold all your shares at end of period $749 $1,067 $1,511 $2,317 - -------------------------------------------------------------------------------------------------- Retail B+: did not sell your shares $249 $ 767 $1,311 $2,547 sold all your shares at end of period $749 $1,167 $1,611 $2,547 - -------------------------------------------------------------------------------------------------- Trust Shares $102 $ 318 $ 552 $1,225 - -------------------------------------------------------------------------------------------------- CAPITAL OPPORTUNITIES FUND Class A $725 $1,039 $1,376 $2,325 - -------------------------------------------------------------------------------------------------- Class S $123 $ 384 $ 665 $1,466 - -------------------------------------------------------------------------------------------------- MIDCAP GROWTH FUND Class A $770 $1,178 $1,610 $2,808 - -------------------------------------------------------------------------------------------------- Class B: did not sell your shares $272 $ 835 $1,425 $2,866 sold all your shares at end of period $772 $1,135 $1,625 $2,866 - -------------------------------------------------------------------------------------------------- Class C: did not sell your shares $272 $ 835 $1,425 $3,022 sold all your shares at end of period $372 $ 835 $1,425 $3,022 - -------------------------------------------------------------------------------------------------- Class S $172 $ 533 $ 918 $1,998 - -------------------------------------------------------------------------------------------------- Class Z $172 $ 533 $ 918 $1,998 - -------------------------------------------------------------------------------------------------- SPECIAL FUND Existing Shares $110 $ 342 $ 593 $1,311 - -------------------------------------------------------------------------------------------------- SPECIAL FUND (pro forma combined) Class A $722 $1,031 $1,361 $2,294 - -------------------------------------------------------------------------------------------------- Class B: did not sell your shares $240 $ 739 $1,265 $2,497 sold all your shares at end of period $740 $1,039 $1,465 $2,497 - -------------------------------------------------------------------------------------------------- Class D: did not sell your shares $237 $ 730 $1,250 $2,676 sold all your shares at end of period $337 $ 730 $1,250 $2,676 - -------------------------------------------------------------------------------------------------- Class G**: did not sell your shares $231 $ 712 $1,220 $2,389 sold all your shares at end of period $731 $1,012 $1,420 $2,389 - -------------------------------------------------------------------------------------------------- Class G++: did not sell your shares $231 $ 712 $1,220 $2,389 sold all your shares at end of period $731 $1,112 $1,520 $2,389 - -------------------------------------------------------------------------------------------------- Class T $707 $ 987 $1,287 $2,137 - -------------------------------------------------------------------------------------------------- Class Z $109 $ 340 $ 590 $1,306
- --------------- * Retail B shares purchased prior to January 1, 2001. + Retail B shares purchased on or after January 1, 2001. ** Class G shares received in exchange for Retail B shares purchased prior to January 1, 2001. ++ Class G shares received in exchange for Retail B shares purchased on or after January 1, 2001. 11 The pro forma combined Example Expenses detailed above assume that all three Acquisitions occur. The tables below present the pro forma combined Example Expenses assuming in each case that only one or two, but not all three, Acquired Funds approve the Acquisition. If only the Acquisition of the Galaxy Growth Fund II were to occur, the Example Expenses of the Special Fund on a pro forma combined basis would be as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SPECIAL FUND (pro forma combined) Class G**: did not sell your shares $234 $ 721 $1,235 $2,420 sold all your shares at end of period $734 $1,021 $1,435 $2,420 - -------------------------------------------------------------------------------------------------- Class G++: did not sell your shares $234 $ 721 $1,235 $2,420 sold all your shares at end of period $734 $1,121 $1,535 $2,420 - -------------------------------------------------------------------------------------------------- Class T $710 $ 996 $1,302 $2,169 - -------------------------------------------------------------------------------------------------- Class Z $112 $ 350 $ 606 $1,340
If only the Acquisition of the Capital Opportunities Fund were to occur, the Example Expenses of the Special Fund on a pro forma combined basis would be as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SPECIAL FUND (pro forma combined) Class A $709 $993 $1,297 $2,158 - -------------------------------------------------------------------------------------------------- Class Z $110 $343 $ 595 $1,317
If only the Acquisition of the Midcap Growth Fund were to occur, the Example Expenses of the Special Fund on a pro forma combined basis would be as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SPECIAL FUND (pro forma combined) Class A $725 $1,039 $1,376 $2,325 - -------------------------------------------------------------------------------------------------- Class B: did not sell your shares $244 $ 751 $1,285 $2,536 sold all your shares at end of period $744 $1,051 $1,485 $2,536 - -------------------------------------------------------------------------------------------------- Class D: did not sell your shares $241 $ 742 $1,270 $2,716 sold all your shares at end of period $341 $ 742 $1,270 $2,716 - -------------------------------------------------------------------------------------------------- Class Z $114 $ 356 $ 617 $1,363
If only the Acquisitions of the Galaxy Growth Fund II and the Capital Opportunities Fund were to occur, the Example Expenses of the Special Fund on a pro forma combined basis would be as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SPECIAL FUND (pro forma combined) Class A $709 $ 993 $1,297 $2,158 - -------------------------------------------------------------------------------------------------- Class G**: did not sell your shares $231 $ 712 $1,220 $2,389 sold all your shares at end of period $731 $1,012 $1,420 $2,389 - -------------------------------------------------------------------------------------------------- Class G++: did not sell your shares $231 $ 712 $1,220 $2,389 sold all your shares at end of period $731 $1,112 $1,520 $2,389 - -------------------------------------------------------------------------------------------------- Class T $707 $ 987 $1,287 $2,137 - -------------------------------------------------------------------------------------------------- Class Z $108 $ 337 $ 585 $1,294
- --------------- ** Class G shares received in exchange for Retail B shares purchased prior to January 1, 2001. ++ Class G shares received in exchange for Retail B shares purchased on or after January 1, 2001. 12 If only the Acquisitions of the Galaxy Growth Fund II and the Midcap Growth Fund were to occur, the Example Expenses of the Special Fund on a pro forma combined basis would be as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SPECIAL FUND (pro forma combined) Class A $724 $1,036 $1,370 $2,314 - -------------------------------------------------------------------------------------------------- Class B: did not sell your shares $243 $ 748 $1,280 $2,525 sold all your shares at end of period $743 $1,048 $1,480 $2,525 - -------------------------------------------------------------------------------------------------- Class D: did not sell your shares $240 $ 739 $1,265 $2,706 sold all your shares at end of period $340 $ 739 $1,265 $2,706 - -------------------------------------------------------------------------------------------------- Class G: did not sell your shares $234 $ 721 $1,235 $2,420 sold all your shares at end of period $734 $1,121 $1,535 $2,420 - -------------------------------------------------------------------------------------------------- Class T $710 $ 996 $1,302 $2,169 - -------------------------------------------------------------------------------------------------- Class Z $112 $ 350 $ 606 $1,340
If only the Acquisitions of the Capital Opportunities Fund and the Midcap Growth Fund were to occur, the Example Expenses of the Special Fund on a pro forma combined basis would be as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS SPECIAL FUND (pro forma combined) Class A $723 $1,033 $1,366 $2,304 - -------------------------------------------------------------------------------------------------- Class B: did not sell your shares $241 $ 742 $1,270 $2,507 sold all your shares at end of period $741 $1,042 $1,470 $2,507 - -------------------------------------------------------------------------------------------------- Class D: did not sell your shares $238 $ 733 $1,255 $2,686 sold all your shares at end of period $338 $ 733 $1,255 $2,686 - -------------------------------------------------------------------------------------------------- Class Z $110 $ 343 $ 595 $1,317
The projected post-Acquisition pro forma Annual Fund Operating Expenses and Example Expenses presented above are based upon numerous material assumptions, including that (1) the current contractual agreements will remain in place and (2) certain fixed costs involved in operating the Acquired Funds are eliminated. Although these projections represent good faith estimates, there can be no assurance that any particular level of expenses or expense savings will be achieved, because expenses depend on a variety of factors, including the future level of fund assets, many of which are beyond the control of the Special Fund or Columbia. 13 4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE GALAXY GROWTH FUND II, THE CAPITAL OPPORTUNITIES FUND, THE MIDCAP GROWTH FUND AND THE SPECIAL FUND COMPARE? This table shows the investment goal and principal investment strategies of each Fund.
- ---------------------------------------------------------------------------------------------------------- CAPITAL OPPORTUNITIES GALAXY GROWTH FUND II FUND - ---------------------------------------------------------------------------------------------------------- INVESTMENT GOAL: The Galaxy Growth Fund II seeks INVESTMENT GOAL: The Capital Opportunities Fund capital appreciation. Dividend income, if any, is seeks long-term growth. incidental to capital appreciation. - ---------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGIES: The Galaxy Growth PRINCIPAL INVESTMENT STRATEGIES: The Capital Fund II seeks to achieve its investment goal as Opportunities Fund seeks to achieve its investment follows: goal as follows: - The Fund normally invests 80% to 90% of its - The Fund invests primarily in the common stocks total assets in the common stock (including of aggressive growth companies. depositary receipts) of U.S. and foreign companies that the Fund's advisor believes have - In selecting investments for the Fund, the above-average growth potential. investment advisor concentrates on stocks of small-cap (stocks with market capitalizations - The Fund principally invests in U.S. companies equal to or lower than the capitalization of the with market capitalizations of at least $250 largest stock in the S&P SmallCap 600 Index million, although the Fund may invest in ($3.8 billion as of December 31, 2001)) and companies with smaller capitalizations. mid-cap (stocks with market capitalizations equal to or less than the capitalization of the - The Fund may invest up to 25% of its total largest stock in the S&P MidCap 400 Index ($10.4 assets in the securities of foreign companies, billion as of December 31, 2001)) companies including companies in developing countries. which it believes have opportunities for growth. - The Fund may invest up to 35% of its total - The Fund may invest up to 25% of its assets in assets in other securities, such as convertible foreign stocks. and non-convertible debt securities, preferred stock, warrants and money market instruments - ---------------------------------------------------------------------------------------------------------- - --- ---------------------------------------------------------------------------------------------------------- MIDCAP GROWTH FUND SPECIAL FUND - --- ---------------------------------------------------------------------------------------------------------- INVESTMENT GOAL: The Midcap Growth Fund seeks INVESTMENT GOAL: The Special Fund seeks capital long-term growth. appreciation. - ---------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGIES: The Midcap Growth PRINCIPAL INVESTMENT STRATEGIES: The Special Fund Fund seeks to achieve its investment goal as seeks to achieve its investment goal as follows: follows: - Under normal market conditions, the Fund invests - The Fund expects to invest primarily in the at least 80% of its net assets (plus any stocks of small- and mid- cap companies, borrowings for investment purposes) in common although it may invest in larger companies when stocks of mid-cap companies that the Fund's the Fund's advisor believes they will offer investment advisor believes have long-term comparable capital appreciation opportunities or growth potential. to stabilize the portfolio. - In selecting investments for the Fund, the - The Fund may invest in special situations such investment advisor considers mid-cap (stocks as initial public offerings, companies that may with market capitalizations equal to or less benefit from technological or product than the capitalization of the largest stock in developments or new management, and companies the S&P MidCap 400 Index ($10.4 billion as of involved in tender offers, leveraged buy-outs or December 31, 2001)) companies that show the mergers. potential to generate and sustain long-term earnings growth at above- average rates. - The Fund may invest in securities convertible into or exercisable for stock (including - The Fund may invest up to 25% of its assets in preferred stock, warrants and debentures), foreign stocks. certain options and financial futures contracts. - The Fund may invest, to a limited extent, in foreign securities, including American Depositary Receipts. - ----------------------------------------------------------------------------------------------------------
14 The following highlights the differences in certain investment strategies that the Galaxy Growth Fund II, the Capital Opportunities Fund and the Midcap Growth Fund, on the one hand, and the Special Fund, on the other hand, use to achieve their investment goals: - Each of the Acquired Funds may invest up to 25% of its net assets in foreign securities, whereas the Special Fund, although it may invest up to 33 1/3% of its assets in foreign equity securities, generally purchases foreign securities only to "a limited extent." - The Special Fund may invest in convertible securities, preferred stock, warrants and debentures, whereas the Capital Opportunities Fund and the Midcap Growth Fund generally do not make such investments. - The Midcap Growth Fund invests primarily in mid-cap stocks, whereas the Special Fund invests in small- and mid-cap stocks. - The Special Fund may invest in special situations (such as IPOs and companies involved in tender offers, leveraged buy-outs or mergers), whereas the Acquired Funds generally do not make such investments to the same extent. The investment policies of the Funds are generally similar. The following compares the differences in investment policies to which the Funds are subject: - The Galaxy Growth Fund II and the Capital Opportunities Fund may invest all or substantially all of their investable assets in another diversified, open-end management investment company having the same investment objective and policies and substantially the same investment restrictions as those applicable to the Fund. The Midcap Growth Fund may not invest in other open-end investment companies, except in connection with a merger, consolidation, acquisition or reorganization. The Special Fund is not restricted from investing in other open-end investment companies, but such investments are not part of its principal investment strategy. - The Galaxy Growth Fund II may not purchase or retain securities of an issuer if an officer, trustee, member or director of the Trust or of the advisor owns beneficially more than 1/2 of one percent of the securities of such issuer and all such officers, trustees, members and directors owning more than 1/2 of one percent of such securities together own more than five percent of such securities. The other Funds are not subject to this restriction. For a complete list of each Fund's investment policies, see the Statement of Additional Information of each Fund. 5. WHAT CLASS OF SPECIAL FUND SHARES WILL YOU RECEIVE IF THE ACQUISITION RELATING TO YOUR ACQUIRED FUND OCCURS? If you own Retail A, Retail B or Trust shares of the Galaxy Growth Fund II, you will receive Class T, Class G or Class Z shares, respectively, of the Special Fund. The shares will have different exchange rights. The shares will bear the same CDSCs upon redemption as your current shares and, in the case of Class G shares, will convert to Class T shares at the same time that your Retail B shares would have converted to Retail A shares. The shares will also have the same distribution, purchase and redemption procedures as your current shares, except that the Special Fund currently does not intend to offer for purchase Class T and Class G shares other than by former Retail A and Retail B shareholders of the Galaxy Growth Fund II. Class Z shares will continue to have no sales charges or 12b-1 fees. In general, Class Z shares may be purchased only by "Eligible Investors" whose purchases satisfy certain minimum initial investment requirements, as described in Appendix G. You do not need to be an Eligible Investor or satisfy those requirements in order to receive Class Z shares of the Special Fund in connection with the Acquisition of the Galaxy Growth Fund II. If you own Class A shares of the Capital Opportunities Fund or Class A, B, or Z shares of the Midcap Growth Fund, you will receive the same class of shares of the Special Fund that you currently own in your Acquired Fund. The shares will have the same exchange rights and will bear the same CDSCs upon redemption and, in 15 the case of Class B shares, will convert to Class A shares at the same time, as your current shares. The shares will also have the same distribution, purchase and redemption procedures as your current shares. If you own Class C shares of the Midcap Growth Fund, you will receive Class D shares of the Special Fund. These shares will have the same exchange rights and will bear the same CDSCs upon redemption. The shares will also have the same distribution, purchase and redemption procedures as your current shares. Unlike your Class C shares, Class D shares of the Special Fund will be subject to a 1.00% initial sales charge on subsequent purchases. If you own Class S shares of the Capital Opportunities Fund or the Midcap Growth Fund, you will receive Class Z shares of the Special Fund. Class Z shares will continue to have no sales charges or 12b-1 fees. As a Class Z shareholder, you will have the same distribution, purchase and redemption procedures as you do for your current shares, but you will have different exchange rights. In general, Class Z shares may be purchased only by "Eligible Investors" whose purchases satisfy certain minimum initial investment requirements, as described in Appendix G. You do not need to be an Eligible Investor or satisfy those requirements in order to receive Class Z shares of the Special Fund in connection with the Acquisition of the Capital Opportunities Fund or the Midcap Growth Fund. For more information on the characteristics of the Merger Shares you will receive, please see the section "Shares You Will Receive" in the Proposal applicable to your Acquired Fund. Please see Appendix G for more information regarding the Merger Shares. 6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITIONS? The Acquisitions are expected to be tax-free to you for federal income tax purposes. This means that neither you nor your Acquired Fund is expected to recognize a gain or loss as a result of the Acquisitions. Immediately prior to the Acquisitions, each Acquired Fund will declare and pay a distribution of all net investment company taxable income, if any, and net realized capital gains (after reduction by any available capital loss carryforwards), if any, to its shareholders. The cost basis and holding period of your Acquired Fund shares are expected to carry over to your new shares in the Special Fund. Please see the section entitled "Federal Income Tax Consequences" for further information on the expected tax consequences of the Acquisitions. 16 PROPOSAL 1 ACQUISITION OF THE GALAXY GROWTH FUND II BY THE COLUMBIA SPECIAL FUND THE PROPOSAL If you are a shareholder of the Galaxy Growth Fund II, you are being asked to approve the Agreement and Plan of Reorganization dated July [ ], 2002, among The Galaxy Trust on behalf of the Galaxy Growth Fund II, the Special Fund, and Columbia. A form of the Agreement and Plan of Reorganization is attached as Appendix A to this Prospectus/Proxy Statement. By approving the Agreement and Plan of Reorganization, you are also approving the Acquisition of the Galaxy Growth Fund II by the Special Fund under the Agreement and Plan of Reorganization. PRINCIPAL INVESTMENT RISKS What are the principal investment risks of the Special Fund, and how do they compare with those of the Galaxy Growth Fund II? The Special Fund is subject to management risk, market risk, equity risk, sector risk and the risks associated with smaller companies, mid-cap companies, special situations (such as IPOs and companies involved in tender offers, leveraged buy-outs or mergers) and foreign securities. The Galaxy Growth Fund II is subject to similar risks, but is not subject to sector risk or the risks associated with mid-cap companies and special situations to the same extent, and may be subject to a greater extent to interest rate risk, credit risk and emerging markets risk. For more information about the principal investment risks of the Special Fund, please see the enclosed Prospectus of the Special Fund. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. INFORMATION ABOUT THE ACQUISITION Please see the section "Information Applicable to Proposals 1, 2 and 3" of this combined Prospectus/ Proxy Statement for a general description of the terms and conditions of the Agreement and Plan of Reorganization relating to each Acquisition and information regarding the federal income tax consequences of the Acquisitions. Shares You Will Receive If the Acquisition occurs and you own Retail A, Retail B or Trust Shares of the Galaxy Growth Fund II, you will receive Class T, Class G or Class Z shares, respectively, of the Special Fund. Please see Appendix G for more information on Class T, G and Z shares of the Special Fund. In comparison to the shares you currently own, the shares you receive will have the following characteristics: - They will have an aggregate net asset value equal to the aggregate net asset value of your current shares as of the business day before the closing of the Acquisition. - The CDSC applicable to redemptions of Class G shares you receive in the Acquisition will depend upon when and how you acquired your Retail B Shares of the Acquired Funds. - If you purchased Retail B shares of the Galaxy Growth Fund II prior to January 1, 2001, you will pay a CDSC of 4.00% if you redeem the Class G shares of the Special Fund you receive in the Acquisition during the second year after you purchased the Retail B shares. This CDSC gradually declines to 0% after six years. Class G shares acquired in this manner will convert to Class T shares six years after the purchase date of the Retail B shares you held prior to the Acquisition. - If you purchased Retail B shares of the Galaxy Growth Fund II on or after January 1, 2001, you will pay a CDSC of 5.00% if you redeem the Class G shares of the Special Fund you receive in the Acquisition during the first year after you purchased the Retail B Shares. This CDSC gradually declines to 0% after seven years. Class G shares acquired in this manner will convert to Class T shares eight years after the purchase date of the Retail B shares you held prior to the Acquisition. 17 - The procedures for purchasing and redeeming your shares will be the same. - Your exchange options will change as a result of the Acquisition. Class T shares of the Special Fund may be exchanged for shares of the same class or Class A shares of another fund distributed by LFDI at net asset value. Class G shares of the Special Fund may be exchanged for shares of the same class or Class B shares of another fund distributed by LFDI at net asset value. Class A or Class B shares obtained by exchange of Class T or Class G shares, respectively, may not be re-exchanged for Class T or Class G shares. Class Z shares may be exchanged for Class Z or Class A shares of another fund distributed by LFDI at net asset value. - You will have rights generally similar to those you currently have. Please see Appendix H for more information regarding the differences between the Galaxy Growth Fund II and the Special Fund. Information concerning the capitalization of each of the Funds is contained in Appendix D. Reasons for the Acquisition The Trustees of The Galaxy Fund, including all Trustees who are not "interested persons" of The Galaxy Fund, and the Directors of the Special Fund, including all Directors who are not "interested persons" of the Special Fund, have determined that the Acquisition would be in the best interests of the relevant Fund's shareholders and that the interests of existing shareholders in the relevant Fund would not be diluted as a result of the Acquisition. The Trustees and Directors have unanimously approved the Acquisition and the Trustees of The Galaxy Fund recommend that you vote in favor of the Acquisition by approving the Agreement and Plan of Reorganization, a form of which is attached as Appendix A to this Prospectus/Proxy Statement. The Acquisition is one of several proposed acquisitions and liquidations of funds in the Liberty, Stein Roe, Galaxy and Columbia Funds groups proposed by Columbia, the parent of the investment advisors to the Liberty, Stein Roe, Galaxy and Columbia Funds. The overall purposes of these acquisitions and liquidations include streamlining and rationalizing the product offerings of the Liberty, Stein Roe, Galaxy and Columbia Funds, creating larger, more efficient funds and permitting the Columbia organization to concentrate its portfolio management resources on a more focused group of portfolios. In proposing the Acquisition, Columbia presented to the Trustees, at meetings held on June 10-11 and June 17, 2002, the following reasons for the Galaxy Growth Fund II to enter into the Acquisition: - The Acquisition is expected to create a larger fund with an investment goal and strategies generally similar to those of the Galaxy Growth Fund II. - Based on estimated expense ratios as of March 31, 2002, net expenses are expected to remain the same or decrease as a percentage of fund assets. - The Acquisition is intended to permit shareholders of the Galaxy Growth Fund II to exchange their investment for an investment in the Special Fund without recognizing gain or loss for federal income tax purposes. By contrast, if a Galaxy Growth Fund II shareholder were to redeem his or her shares to invest in another fund, such as the Special Fund, the transaction would likely be a taxable event for such shareholder. Similarly, if the Galaxy Growth Fund II were liquidated or reorganized in a taxable transaction, the transaction would likely be a taxable event for shareholders of the Galaxy Growth Fund II. After the Acquisition, shareholders may redeem any or all of their Special Fund shares at net asset value (subject to any applicable CDSC) at any time, at which point they would recognize a taxable gain or loss. The Trustees considered that shareholders of the Galaxy Growth Fund II who do not want to become shareholders of the Special Fund could redeem their shares in the Galaxy Growth Fund II in taxable transactions prior to the Acquisition. 18 In addition, the Trustees considered the tax effects of the Acquisition and the relative Fund performance results set forth below under "Performance Information." No assurance can be given that the Special Fund will achieve any particular level of performance after the Acquisition. Performance Information The charts below show the percentage gain or loss in each calendar year for Trust shares of the Galaxy Growth Fund II since it commenced operations, and for the existing shares of the Special Fund for the ten-year period ending December 31, 2001. They should give you a general idea of how each Fund's return has varied from year to year. The charts include the effects of Fund expenses, but not sales charges (if applicable to the Fund's shares). Returns would be lower if any applicable sales charges were included. The calculations of total return assume the reinvestment of all dividends and capital gain distributions on the reinvestment date. Past performance is not an indication of future results. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Additional discussion of the manner of calculation of total return is contained in each Fund's Prospectus and Statement of Additional Information. GALAXY GROWTH FUND II(14) [Galaxy Growth Fund II Chart]
GALAXY GROWTH FUND II --------------------- 1997 13.92 1998 1.36 1999 70.42 2000 0.15 2001 -14.70
The Fund's year-to-date total return through June 30, 2002, was [ ]%. For period shown in bar chart: Best quarter: 4th quarter 1999, +53.66% Worst quarter: 3rd quarter 2001, -24.28% - --------------- (14) The Galaxy Growth Fund II commenced operations on March 28, 1996, as the Boston 1784 Growth Fund, a separate portfolio of the Boston 1784 Funds (the "Predecessor Fund"). On June 26, 2000, the Predecessor Fund was reorganized as a new portfolio of The Galaxy Fund. Prior to the reorganization, the Predecessor Fund offered and sold one series of shares. In connection with the reorganization, shareholders of the Predecessor Fund exchanged their shares for Trust Shares or BKB Shares of the Galaxy Growth Fund II. Shareholders of the Predecessor Fund who purchased their shares through an investment management, trust, custody or other agency relationship with BankBoston, N.A. received Trust Shares of the Galaxy Growth Fund II. The returns shown above for periods prior to June 26, 2000, are for the Predecessor Fund. 19 SPECIAL FUND [SPECIAL FUND GRAPH]
SPECIAL FUND ------------ 1992 13.70 1993 21.68 1994 2.29 1995 29.53 1996 13.07 1997 12.64 1998 16.64 1999 36.33 2000 13.84 2001 -20.98
The Fund's year-to-date total return through June 30, 2002, was [ ]%. For period shown in bar chart: Best quarter: 4th quarter 1999, +37.43% Worst quarter: 1st quarter 2001, -20.28% The following tables list the Galaxy Growth Fund II's average annual total return for each class of shares for the one-year and life-of-the-fund periods ending December 31, 2001 (including applicable sales charges), and the Special Fund's average annual total return for its existing shares for the one-year, five-year and ten-year periods ending December 31, 2001. These tables are intended to provide you with some indication of the risks of investing in these Funds. At the bottom of each table, you can compare these Funds' performance with the performance of broad-based market indices. After-tax returns are calculated using the historical highest individual marginal federal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and may not be relevant to investors who hold shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. GALAXY GROWTH FUND II(15)(16)
SINCE RETAIL A AND RETAIL B SINCE TRUST 1 YEAR SHARE INCEPTION 5 YEAR SHARE INCEPTION Retail A (%) Return Before Taxes -19.91 -14.43 Return After Taxes on Distributions -19.91 -15.58 Return After Taxes on Distributions and Sale of Fund Shares -12.12 -11.34 - ----------------------------------------------------------------------------------------------------- Retail B (%) -19.77 -13.64 - ----------------------------------------------------------------------------------------------------- Trust (%) Return Before Taxes -14.70 10.95 12.53 Return After Taxes on Distributions -14.70 7.65 9.59 Return After Taxes on Distributions and Sale of Fund Shares -8.95 8.60 10.06 - ----------------------------------------------------------------------------------------------------- Russell 2000 Index (%) 2.49 -2.37(17) 7.52 8.43(18) - ----------------------------------------------------------------------------------------------------- Russell Midcap Growth Index (%) -20.15 -26.64(17) 9.02 9.66(18)
- --------------- (15) The Galaxy Growth Fund II commenced operations on June 26, 2000, when the Predecessor Fund was reorganized as a new portfolio of The Galaxy Funds. Prior to the reorganization, the Predecessor Fund offered and sold one series of shares. In connection 20 with the reorganization, shareholders of the Predecessor Fund exchanged their shares for Trust Shares or BKB Shares of the Galaxy Growth Fund II. Shareholders of the Predecessor Fund who purchased their shares through an investment management, trust, custody or other agency relationship with BankBoston, N.A. received Trust Shares of the Galaxy Growth Fund II. Shareholders of the Predecessor Fund who purchased their shares other than through an investment management, trust, custody or other agency relationship with BankBoston, N.A. received BKB Shares of the Galaxy Growth Fund II. On June 26, 2001, BKB Shares were converted into Retail A Shares. The Trust Share returns shown above for periods prior to June 26, 2000 are those of the Predecessor Fund. (16) The Fund has changed its benchmark index to the Russell Midcap Growth Index because companies included in this Index more closely represent the composition of the Fund's investment portfolio than the Russell 2000 Index. The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios. Unlike the 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 indices. (17) Index performance information is from June 30, 2000, to December 31, 2001. (18) Index performance information is from March 31, 1996, to December 31, 2001. SPECIAL FUND(19)
1 YEAR 5 YEARS 10 YEARS Existing Shares (%) Return Before Taxes -20.98 10.01 12.82 Return After Taxes on Distributions -21.70 7.20 9.25 Return After Taxes on Distributions and Sale of Fund Shares -12.10 7.61 9.33 - ------------------------------------------------------------------------------------------- Russell Midcap Index (%) -5.62 11.40 13.58 - ------------------------------------------------------------------------------------------- Russell Midcap Growth Index (%) -20.15 9.02 11.10
- --------------- (19) The Special Fund's returns are compared to the Russell Midcap Index and the Russell Midcap Growth Index. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios. Unlike the 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 indices. Class A, B, D, G and T shares of the Special Fund, which were not in existence as of December 31, 2001, are not included in the table. The existing shares of the Special Fund will be redesignated as Class Z shares at the time of the Acquisitions. THE TRUSTEES OF THE GALAXY FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. Required Vote for Proposal 1 Approval of the Agreement and Plan of Reorganization dated July [ ], 2002, among The Galaxy Fund on behalf of the Galaxy Growth Fund II, the Special Fund, and Columbia will require the affirmative vote of a majority of the outstanding shares of the Galaxy Growth Fund II. A vote of the shareholders of the Special Fund is not needed to approve the Acquisition. Although the Trustees are proposing that the Special Fund acquire each of the Acquired Funds, the acquisition of one Acquired Fund is not conditioned upon the acquisition of one or both of the other Acquired Funds. Accordingly, if Galaxy Growth Fund II shareholders approve the acquisition of the Galaxy Growth Fund II, but the Capital Opportunities Fund and/or Midcap Growth Fund shareholders do not approve the acquisition of their Acquired Fund, it is expected that, subject to the terms of the Agreement and Plan of Reorganization, the Acquisition proposed in this Proposal 1 will take place as described in this Prospectus/ Proxy Statement. 21 PROPOSAL 2 ACQUISITION OF THE STEIN ROE CAPITAL OPPORTUNITIES FUND BY THE COLUMBIA SPECIAL FUND THE PROPOSAL If you are a shareholder of the Capital Opportunities Fund, you are being asked to approve the Agreement and Plan of Reorganization dated July [ ], 2002, among the Investment Trust on behalf of the Capital Opportunities Fund, the Special Fund, and Columbia. A form of the Agreement and Plan of Reorganization is attached as Appendix B to this Prospectus/Proxy Statement. By approving the Agreement and Plan of Reorganization, you are also approving the Acquisition of the Capital Opportunities Fund by the Special Fund under the Agreement and Plan of Reorganization. PRINCIPAL INVESTMENT RISKS What are the principal investment risks of the Special Fund, and how do they compare with those of the Capital Opportunities Fund? The Special Fund is subject to management risk, market risk, equity risk, sector risk and the risks associated with smaller companies, mid-cap companies, special situations (such as IPOs and companies involved in tender offers, leveraged buy-outs or mergers) and foreign securities. The Capital Opportunities Fund is subject to similar risks, but is not subject to sector risk and the risks associated with special situations to the same extent and may be subject to a greater extent to the risks associated with growth stocks. For more information about the principal investment risks of the Special Fund, please see the enclosed Prospectus of the Special Fund. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. INFORMATION ABOUT THE ACQUISITION Please see the section "Information Applicable to Proposals 1, 2 and 3" of this combined Prospectus/ Proxy Statement for a general description of the terms and conditions of the Agreement and Plan of Reorganization relating to each Acquisition and information regarding the federal income tax consequences of the Acquisitions. Shares You Will Receive If the Acquisition occurs and you own Class A shares of the Capital Opportunities Fund, you will receive Class A shares of the Special Fund. If you own Class S shares of the Capital Opportunities Fund, you will receive Class Z shares of the Special Fund. Please see Appendix G for more information on Class A and Class Z shares of the Special Fund. In comparison to the shares you currently own, the shares you receive will have the following characteristics: - They will have an aggregate net asset value equal to the aggregate net asset value of your current shares as of the business day before the closing of the Acquisition. - They will bear the same sales charges, redemption fees and CDSCs as your current shares, to the extent such charges and fees apply. - The procedures for purchasing and redeeming your shares will not change as a result of the Acquisition. - If you own Class A shares of the Capital Opportunities Fund, you will have the same exchange options as you currently have. - If you own Class S shares of the Capital Opportunities Fund, you will have different exchange rights as a Class Z shareholder of the Special Fund. Whereas Class S shares of the Capital Opportunities Fund could be exchanged only for shares of certain other Stein Roe no-load funds offered for sale in your 22 state of residence, your new Class Z shares may be exchanged for Class Z or Class A shares of other funds distributed by LFDI at net asset value. - In general, Class Z shares of the Special Fund may be purchased only by "Eligible Investors" whose purchases satisfy certain minimum initial investment requirements, as described in Appendix G. You do not need to be an Eligible Investor or satisfy those requirements in order to receive Class Z shares of the Special Fund in connection with the Acquisition. - You will have rights generally similar to those you currently have. Please see Appendix H for more information regarding the differences between the Capital Opportunities Fund and the Special Fund. Information concerning the capitalization of each of the Funds is contained in Appendix D. Reasons for the Acquisition The Trustees of the Investment Trust, including all Trustees who are not "interested persons" of the Investment Trust, and the Directors of the Special Fund, including all Directors who are not "interested persons" of the Special Fund, have determined that the Acquisition would be in the best interests of the relevant Fund's shareholders and that the interests of existing shareholders in the relevant Fund would not be diluted as a result of the Acquisition. The Trustees and Directors have unanimously approved the Acquisition and the Trustees of the Investment Trust recommend that you vote in favor of the Acquisition by approving the Agreement and Plan of Reorganization, a form of which is attached as Appendix B to this Prospectus/ Proxy Statement. The Acquisition is one of several proposed acquisitions and liquidations of funds in the Liberty, Stein Roe, Galaxy and Columbia Funds groups proposed by Columbia, the parent of the investment advisors to the Liberty, Stein Roe, Galaxy and Columbia Funds. The overall purposes of these acquisitions and liquidations include streamlining and rationalizing the product offerings of the Liberty, Stein Roe, Galaxy and Columbia Funds, creating larger, more efficient funds and permitting the Columbia organization to concentrate its portfolio management resources on a more focused group of portfolios. In proposing the Acquisition, Columbia presented to the Trustees, at meetings held on May 7-8, May 21 and June 19, 2002, the following reasons for the Capital Opportunities Fund to enter into the Acquisition: - The Acquisition is expected to create a larger fund with an investment goal and strategies generally similar to those of the Capital Opportunities Fund. - Based on estimated expense ratios as of March 31, 2002, expenses are expected to remain the same or decrease as a percentage of fund assets. - The Acquisition is intended to permit the Capital Opportunities Fund's shareholders to exchange their investment for an investment in the Special Fund without recognizing gain or loss for federal income tax purposes. By contrast, if a Capital Opportunities Fund shareholder were to redeem his or her shares to invest in another fund, such as the Special Fund, the transaction would likely be a taxable event for such shareholder. Similarly, if the Capital Opportunities Fund were liquidated or reorganized in a taxable transaction, the transaction would likely be a taxable event for the Capital Opportunities Fund's shareholders. After the Acquisition, shareholders may redeem any or all of their Special Fund shares at net asset value (subject to any applicable CDSC) at any time, at which point they would recognize a taxable gain or loss. The Trustees considered that shareholders of the Capital Opportunities Fund who do not want to become shareholders of the Special Fund could redeem their shares in the Capital Opportunities Fund in taxable transactions prior to the Acquisition. In addition, the Trustees considered the tax effects of the Acquisition and the relative Fund performance results set forth below under "Performance Information." No assurance can be given that the Special Fund will achieve any particular level of performance after the Acquisition. 23 Performance Information The charts below show the percentage gain or loss in each calendar year for the ten-year period ending December 31, 2001, for Class S shares of the Capital Opportunities Fund (the oldest existing share class) and the existing shares of the Special Fund. They should give you a general idea of how each Fund's return has varied from year to year. The charts include the effects of Fund expenses. The calculations of total return assume the reinvestment of all dividends and capital gain distributions on the reinvestment date. Past performance is not an indication of future results. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Additional discussion of the manner of calculation of total return is contained in each Fund's Prospectus and Statement of Additional Information. CAPITAL OPPORTUNITIES FUND [BAR CHART]
CAPITAL OPPORTUNITIES FUND -------------------------- 1992 2.43 1993 27.52 1994 0.00 1995 50.77 1996 20.39 1997 6.15 1998 -1.61 1999 40.33 2000 -11.29 2001 -21.02
The Fund's year-to-date total return through For period shown in bar chart: June 30, 2002, was [ ]% Best quarter: 4th quarter 1999, +43.85% Worst quarter: 3rd quarter 1998, -25.14%
SPECIAL FUND [BAR CHART]
SPECIAL FUND ------------ 1992 13.70 1993 21.68 1994 2.29 1995 29.53 1996 13.07 1997 12.64 1998 16.64 1999 36.33 2000 13.84 2001 -20.98
The Fund's year-to-date total return through For period shown in bar chart: June 30, 2002, was [ ]% Best quarter: 4th quarter 1999, +37.43% Worst quarter: 1st quarter 2001, -20.28%
The following tables list each Fund's average annual total return for each class of its shares for the one-year, five-year and ten-year periods ending December 31, 2001 (including applicable sales charges). These tables are intended to provide you with some indication of the risks of investing in these Funds. At the bottom 24 of each table, you can compare these Funds' performance with the performance of a broad-based market index. After-tax returns are calculated using the historical highest individual marginal federal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and may not be relevant to investors who hold shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. CAPITAL OPPORTUNITIES FUND(20)(21)
1 YEAR 5 YEARS 10 YEARS Class A (%) Return Before Taxes -25.68 -0.72 8.62 Return After Taxes on Distributions -25.68 -2.08 7.73 Return After Taxes on Distributions and Sale of Fund Shares -15.64 -0.58 7.26 - ------------------------------------------------------------------------------------------- Class S (%) Return Before Taxes -21.02 0.53 9.31 Return After Taxes on Distributions -21.02 -0.84 8.41 Return After Taxes on Distributions and Sale of Fund Shares -12.80 0.42 7.87 - ------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) -0.62 16.11 15.01
- --------------- (20) Class A is a newer class of shares. Its performance includes returns of the Fund's Class S 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 12b-1 fees) between Class S shares and Class A shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception Class A shares would have been lower. Class A shares were initially offered on July 31, 2000, and Class S shares were initially offered on June 10, 1963. (21) The Capital Opportunities Fund's returns are compared to the Standard & Poor's MidCap 400 Index (the "S&P MidCap 400 Index"), an unmanaged broad-based measure of market performance. Unlike the 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 indices. SPECIAL FUND(22)
1 YEAR 5 YEARS 10 YEARS Existing Shares (%) Return Before Taxes -20.98 10.01 12.82 Return After Taxes on Distributions -21.70 7.20 9.25 Return After Taxes on Distributions and Sale of Fund Shares -12.10 7.61 9.33 - ------------------------------------------------------------------------------------------- Russell Midcap Index (%) -5.62 11.40 13.58 - ------------------------------------------------------------------------------------------- Russell Midcap Growth Index (%) -20.15 9.02 11.10
- --------------- (22) The Special Fund's returns are compared to the Russell Midcap Index and the Russell Midcap Growth Index. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios. Unlike the 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 indices. Class A, B, D, G and T shares of the Special Fund, which were not in existence as of December 31, 2001, are not included in the table. The existing shares of the Special Fund will be redesignated as Class Z shares at the time of the Acquisitions. THE TRUSTEES OF THE INVESTMENT TRUST UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. Required Vote for Proposal 2 Approval of the Agreement and Plan of Reorganization dated July [ ], 2002, among the Investment Trust on behalf of the Capital Opportunities Fund, the Special Fund, and Columbia will require the 25 affirmative vote of a majority of the shares of the Capital Opportunities Fund voted. A vote of the shareholders of the Special Fund is not needed to approve the Acquisition. Although the Trustees are proposing that the Special Fund acquire each of the Acquired Funds, the acquisition of one Acquired Fund is not conditioned upon the acquisition of one or both of the other Acquired Funds. Accordingly, if Capital Opportunities Fund shareholders approve the acquisition of the Capital Opportunities Fund, but the Galaxy Growth Fund II and/or Midcap Growth Fund shareholders do not approve the acquisition of their Acquired Fund, it is expected that, subject to the terms of the Agreement and Plan of Reorganization, the Acquisition proposed in this Proposal 2 will take place as described in this Prospectus/Proxy Statement. 26 PROPOSAL 3 ACQUISITION OF THE LIBERTY MIDCAP GROWTH FUND BY THE COLUMBIA SPECIAL FUND THE PROPOSAL If you are a shareholder of the Midcap Growth Fund, you are being asked to approve the Agreement and Plan of Reorganization dated July [ ], 2002, among the Investment Trust on behalf of the Midcap Growth Fund, the Special Fund, and Columbia. A form of the Agreement and Plan of Reorganization is attached as Appendix C to this Prospectus/Proxy Statement. By approving the Agreement and Plan of Reorganization, you are also approving the Acquisition of the Midcap Growth Fund by the Special Fund under the Agreement and Plan of Reorganization. PRINCIPAL INVESTMENT RISKS What are the principal investment risks of the Special Fund, and how do they compare with those of the Midcap Growth Fund? The Special Fund is subject to management risk, market risk, equity risk, sector risk and the risks associated with smaller companies, mid-cap companies, special situations (such as IPOs and companies involved in tender offers, leveraged buy-outs or mergers) and foreign securities. The Midcap Growth Fund is subject to similar risks, but is not subject to sector risk and the risks associated with special situations to the same extent and may be subject to a greater extent to the risks associated with growth stocks. For more information about the principal investment risks of the Special Fund, please see the enclosed Prospectus of the Special Fund. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. INFORMATION ABOUT THE ACQUISITION Please see the section "Information Applicable to Proposals 1, 2 and 3" of this combined Prospectus/Proxy Statement for a general description of the terms and conditions of the Agreement and Plan of Reorganization relating to each Acquisition and information regarding the federal income tax consequences of the Acquisitions. Shares You Will Receive If the Acquisition occurs and you own Class A, Class B or Class Z shares of the Midcap Growth Fund, you will receive the same class of shares of the Special Fund as you currently own. If you own Class C shares of the Midcap Growth Fund, you will receive Class D shares of the Special Fund. If you own Class S shares of the Midcap Growth Fund, you will receive Class Z shares of the Special Fund. Please see Appendix G for more information on Class A, B, D and Z shares of the Special Fund. In comparison to the shares you currently own, the shares you receive will have the following characteristics: - They will have an aggregate net asset value equal to the aggregate net asset value of your current shares as of the business day before the closing of the Acquisition. - They will bear the same sales charges, redemption fees and CDSCs as your current shares, to the extent such charges and fees apply, but for purposes of determining the CDSC applicable to any redemption and/or conversion of Class B shares to Class A shares, if applicable, the new shares will continue to age from the date you purchased your Midcap Growth Fund shares. Although Class D shares will bear an initial sales charge of 1.00%, that sales charge will not apply to the Class D shares you receive in the Acquisition. - The procedures for purchasing and redeeming your shares will not change as a result of the Acquisition. 27 - If you own Class A, B, C or Z shares of the Midcap Growth Fund, you will have the same exchange options as you currently have. - If you own Class S shares of the Midcap Growth Fund, you will have different exchange rights as a Class Z shareholder of the Special Fund. Whereas Class S shares of the Midcap Growth Fund could be exchanged only for shares of certain other Stein Roe no-load funds offered for sale in your state of residence, your new Class Z shares may be exchanged for Class Z or Class A shares of other funds distributed by LFDI at net asset value. - In general, Class Z shares of the Special Fund may be purchased only by "Eligible Investors" whose purchases satisfy certain minimum initial investment requirements, as described in Appendix G. You do not need to be an Eligible Investor or satisfy those requirements in order to receive Class Z shares of the Special Fund in connection with the Acquisition. - You will have rights generally similar to those you currently have. Please see Appendix H for more information regarding the differences between the Midcap Growth Fund and the Special Fund. Information concerning the capitalization of each of the Funds is contained in Appendix D. Reasons for the Acquisition The Trustees of the Investment Trust, including all Trustees who are not "interested persons" of the Investment Trust, and the Directors of the Special Fund, including all Directors who are not "interested persons" of the Special Fund, have determined that the Acquisition would be in the best interests of the relevant Fund's shareholders and that the interests of existing shareholders in the relevant Fund would not be diluted as a result of the Acquisition. The Trustees and Directors have unanimously approved the Acquisition and the Trustees of the Investment Trust recommend that you vote in favor of the Acquisition by approving the Agreement and Plan of Reorganization, a form of which is attached as Appendix C to this Prospectus/Proxy Statement. The Acquisition is one of several proposed acquisitions and liquidations of funds in the Liberty, Stein Roe, Galaxy and Columbia Funds groups proposed by Columbia, the parent of the investment advisors to the Liberty, Stein Roe, Galaxy and Columbia Funds. The overall purposes of these acquisitions and liquidations include streamlining and rationalizing the product offerings of the Liberty, Stein Roe, Galaxy and Columbia Funds, creating larger, more efficient funds and permitting the Columbia organization to concentrate its portfolio management resources on a more focused group of portfolios. In proposing the Acquisition, Columbia presented to the Trustees, at meetings held on May 7-8, May 21 and June 19, 2002, the following reasons for the Midcap Growth Fund to enter into the Acquisition: - The Acquisition is expected to create a larger fund with an investment goal and strategies generally similar to those of the Midcap Growth Fund. - Because the Midcap Growth Fund is too small to be economically viable without fee waivers and expense reimbursements, and has been unable to achieve meaningful sales growth that over time could reduce Fund expenses, the Trustees should approve (and they have subsequently approved) the liquidation of the Midcap Growth Fund in the event that its shareholders do not approve the Acquisition. - Based on estimated expense ratios as of March 31, 2002, net expenses are expected to remain the same or decrease as a percentage of fund assets. - The Acquisition is intended to permit the Midcap Growth Fund's shareholders to exchange their investment for an investment in the Special Fund without recognizing gain or loss for federal income tax purposes. By contrast, if a Midcap Growth Fund shareholder were to redeem his or her shares to invest in another fund, such as the Special Fund, the transaction would likely be a taxable event for such shareholder. Similarly, if the Midcap Growth Fund were liquidated or reorganized in a taxable transaction, the transaction would likely be a taxable event for the Midcap Growth Fund's sharehold- 28 ers. After the Acquisition, shareholders may redeem any or all of their Special Fund shares at net asset value (subject to any applicable CDSC) at any time, at which point they would recognize a taxable gain or loss. The Trustees considered that shareholders of the Midcap Growth Fund who do not want to become shareholders of the Special Fund could redeem their shares in the Midcap Growth Fund in taxable transactions prior to the Acquisition. In addition, the Trustees considered the tax effects of the Acquisition and the relative Fund performance results set forth below under "Performance Information." No assurance can be given that the Special Fund will achieve any particular level of performance after the Acquisition. Performance Information The charts below show the percentage gain or loss in each calendar year for Class S shares of the Midcap Growth Fund (the oldest existing share class) since that Fund commenced operations and for the existing shares of the Special Fund for the ten-year period ending December 31, 2001. They should give you a general idea of how each Fund's return has varied from year to year. The charts include the effects of Fund expenses. The calculations of total return assume the reinvestment of all dividends and capital gain distributions on the reinvestment date. Past performance is not an indication of future results. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Additional discussion of the manner of calculation of total return is contained in each Fund's Prospectus and Statement of Additional Information. MIDCAP GROWTH FUND [BAR CHART]
MIDCAP GROWTH FUND ------------------ 1998 15.24 1999 42.73 2000 -14.06 2001 -22.43
The Fund's year-to-date total return through June 30, 2002, was [ ]%. For period shown in bar chart: Best quarter: 4th quarter 1999, +44.10% Worst quarter: 3rd quarter 2001, -28.02% 29 SPECIAL FUND [BAR CHART]
SPECIAL FUND ------------ 1992 13.70 1993 21.68 1994 2.29 1995 29.53 1996 13.07 1997 12.64 1998 16.64 1999 36.33 2000 13.84 2001 -20.98
The Fund's year-to-date total return through June 30, 2002, was [ ]%. For period shown in bar chart: Best quarter: 4th quarter 1999, +37.43% Worst quarter: 1st quarter 2001, -20.28% The following tables list the Midcap Growth Fund's average annual total return for each class of its shares for the one-year and life-of-the-fund periods (including applicable sales charges), and the Special Fund's average annual total return for its existing shares for the one-year, five-year and ten-year periods ending December 31, 2001. These tables are intended to provide you with some indication of the risks of investing in these Funds. At the bottom of each table, you can compare these Funds' performance with the performance of a broad-based market index. After-tax returns are calculated using the historical highest individual marginal federal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and may not be relevant to investors who hold shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. MIDCAP GROWTH FUND(23)(24)
LIFE OF 1 YEAR THE FUND Class A (%) Return Before Taxes -27.11 2.74 Return After Taxes on Distributions -27.11 1.48 Return After Taxes on Distributions and Sale of Fund Shares -16.51 2.15 - -------------------------------------------------------------------------------- Class B (%) Return Before Taxes -27.10 3.48 Return After Taxes on Distributions -27.10 2.20 Return After Taxes on Distributions and Sale of Fund Shares -16.50 2.77 - -------------------------------------------------------------------------------- Class C (%) Return Before Taxes -23.99 3.84 Return After Taxes on Distributions -23.99 2.58 Return After Taxes on Distributions and Sale of Fund Shares -14.61 3.06 - --------------------------------------------------------------------------------
30
LIFE OF 1 YEAR THE FUND Class S (%) Return Before Taxes -22.42 4.17 Return After Taxes on Distributions -22.42 2.90 Return After Taxes on Distributions and Sale of Fund Shares -13.66 3.32 - -------------------------------------------------------------------------------- Class Z (%) Return Before Taxes -22.50 4.14 Return After Taxes on Distributions -22.50 2.87 Return After Taxes on Distributions and Sale of Fund Shares -13.70 3.30 - -------------------------------------------------------------------------------- S&P MidCap 400 Index (%) -0.62 14.89(25)
- --------------- (23) Class A, Class B, Class C and Class Z are newer classes of shares. Their performance information includes returns of the Fund's Class S shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as 12b-1 fees) between Class S shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A, Class B, Class C and Class Z shares were initially offered on July 31, 2000, and Class S shares were initially offered on June 30, 1997. (24) The Midcap Growth Fund's returns are compared to the Standard & Poor's MidCap 400 Index (the "S&P MidCap 400 Index"), an unmanaged broad-based measure of market performance. Unlike the 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 indices. (25) Index performance information is from June 30, 1997, to December 31, 2001. SPECIAL FUND(26)
1 YEAR 5 YEARS 10 YEARS Existing Shares (%) Return Before Taxes -20.98 10.01 12.82 Return After Taxes on Distributions -21.70 7.20 9.25 Return After Taxes on Distributions and Sale of Fund Shares -12.10 7.61 9.33 - ------------------------------------------------------------------------------------------- Russell Midcap Index (%) -5.62 11.40 13.58 - ------------------------------------------------------------------------------------------- Russell Midcap Growth Index (%) -20.15 9.02 11.10
- --------------- (26) The Special Fund's returns are compared to the Russell Midcap Index and the Russell Midcap Growth Index. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios. Unlike the 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 indices. Class A, B, D, G and T shares of the Special Fund, which were not in existence as of December 31, 2001, are not included in the table. The existing shares of the Special Fund will be redesignated as Class Z shares at the time of the Acquisitions. THE TRUSTEES OF THE INVESTMENT TRUST UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. Required Vote for Proposal 3 Approval of the Agreement and Plan of Reorganization dated July [ ], 2002, among the Investment Trust on behalf of the Midcap Growth Fund, the Special Fund, and Columbia will require the affirmative vote of a majority of the shares of the Midcap Growth Fund voted. A vote of the shareholders of the Special Fund is not needed to approve the Acquisition. Although the Trustees are proposing that the Special Fund acquire each of the Acquired Funds, the acquisition of one Acquired Fund is not conditioned upon the acquisition of one or both of the other Acquired Funds. Accordingly, if Midcap Growth Fund shareholders approve the acquisition of the Midcap Growth Fund, but the Capital Opportunities Fund and/or Galaxy Growth Fund II shareholders do not approve the acquisition of their Acquired Fund, it is expected that, subject to the terms of the Agreement and Plan of Reorganization, the Acquisition proposed in this Proposal 3 will take place as described in this Prospectus/ Proxy Statement. 31 INFORMATION APPLICABLE TO PROPOSALS 1, 2 AND 3 General Although the Trustees are proposing that the Special Fund acquire each of the Acquired Funds, the Acquisition proposed in each Proposal is not conditioned upon the approval of the Acquisition proposed in any other Proposal. Accordingly, in the event that the shareholders of one Acquired Fund approve the Acquisition but the shareholders of either or both of the other Acquired Funds do not, it is expected that the approved Acquisition will, subject to the terms of the Agreement and Plan of Reorganization, take place as described above. Shareholders who object to the Acquisition of their Acquired Fund will not be entitled under Massachusetts law or the Declaration of Trust of The Galaxy Fund or the Investment Trust to demand payment for, or an appraisal of, their shares. However, shareholders should be aware that the Acquisitions as proposed are not expected to result in recognition of gain or loss to shareholders for federal income tax purposes and that, if the Acquisitions are consummated, shareholders will be free to redeem the shares which they receive in the transaction at their current net asset value, less any applicable CDSC. In addition, shares may be redeemed at any time prior to the consummation of the Acquisitions. The Special Fund, and each fund in the Columbia Funds family, is organized as an Oregon corporation with a single class of shares. The Special Fund is currently seeking shareholder approval of an amendment to its Articles of Incorporation that would permit the Fund to adopt a multi-class structure, as contemplated herein. Terms of the Agreement and Plan of Reorganization If approved by the shareholders of each Acquired Fund, the Acquisitions are expected to occur on or around [ ], 2002, each under a separate Agreement and Plan of Reorganization. A form of the Agreement and Plan of Reorganization relating to the acquisition of the Galaxy Growth Fund II is attached as Appendix A to this combined Prospectus/Proxy Statement, a form of the Agreement and Plan of Reorganization relating to the acquisition of the Capital Opportunities Fund is attached as Appendix B to this combined Prospectus/Proxy Statement and a form of the Agreement and Plan of Reorganization relating to the acquisition of the Midcap Growth Fund is attached as Appendix C to this combined Prospectus/Proxy Statement. Please review Appendix A, Appendix B and/or Appendix C, as applicable. The following is a brief summary of the principal terms of each Agreement and Plan of Reorganization: - Each Acquired Fund will transfer all of the assets and liabilities attributable to each class of its shares to the Special Fund in exchange for shares of the Special Fund with an aggregate net asset value equal to the net value of the transferred assets and liabilities. - The Acquisitions will occur on the next business day after the time (currently scheduled to be 4:00 p.m. Eastern Time on [ ], 2002, or such other date and time as the parties may determine) when the assets of each Fund are valued for purposes of the Acquisitions. - The shares of each class of the Special Fund received by each Acquired Fund will be distributed to such Acquired Fund's shareholders pro rata in accordance with their percentage ownership of such class of such Acquired Fund in full liquidation of such Acquired Fund. - After consummation of its Acquisition, each Acquired Fund will be terminated, and its affairs will be wound up in an orderly fashion. - Each Acquisition requires approval by the respective Acquired Fund's shareholders and satisfaction of a number of other conditions; each Acquisition may be terminated at any time with the approval of the Trustees of the Trust and the Directors of the Special Fund that are parties to such Acquisition. 32 Federal Income Tax Consequences Each Acquisition is intended to be a tax-free reorganization. Ropes & Gray has delivered to each Acquired Fund and the Special Fund an opinion, and the closing of each Acquisition will be conditioned on receipt of a letter from Ropes & Gray confirming each such opinion, to the effect that, on the basis of existing law under specified sections of the Internal Revenue Code of 1986, as amended (the "Code"), although not entirely free from doubt, for federal income tax purposes: - under Section 361 or Section 354 of the Code, respectively, no gain or loss will be recognized by the relevant Acquired Fund or the shareholders of such Acquired Fund as a result of the relevant Acquisition; - under Section 358 of the Code, the tax basis of the Special Fund shares you receive will be the same, in the aggregate, as the aggregate tax basis of your Acquired Fund shares exchanged therefor; - under Section 1223(1) of the Code, your holding period for the Special Fund shares you receive will include the holding period for your Acquired Fund shares exchanged therefor if you hold your shares as a capital asset; - under Section 1032 of the Code, no gain or loss will be recognized by the Special Fund as a result of the relevant Acquisition; - under Section 362(b) of the Code, the Special Fund's tax basis in the assets that the Special Fund receives from the relevant Acquired Fund will be the same as such Acquired Fund's basis in such assets; and - under Section 1223(2) of the Code, the Special Fund's holding period in such assets will include the relevant Acquired Fund's holding period in such assets. Each opinion is, and each confirmation letter will be, based on certain factual certifications made by officers of the Special Fund, The Galaxy Fund and the Investment Trust. None of the opinions is a guarantee that the tax consequences of the relevant Acquisition will be as described above. Prior to the closing of each Acquisition, the relevant Acquired Fund will, and the Special Fund may, distribute to their shareholders all of their respective net investment company taxable income, if any, and net realized capital gains (after reduction by any available capital loss carryforwards), if any, that have not previously been distributed to shareholders. Such distributions will be taxable to shareholders. A substantial portion of the portfolio assets of each Acquired Fund may be sold in connection with the Acquisitions. The actual tax impact of such sales will depend on the difference between the price at which such portfolio assets are sold and the relevant Acquired Fund's basis in such assets. Any net capital gains recognized in these sales not offset by capital loss carryforwards will be distributed to the relevant Acquired Fund's shareholders as capital gain dividends (to the extent of net realized long-term capital gains) and/or ordinary dividends (to the extent of net realized short-term capital gains) during or with respect to the year of sale, and such distributions will be taxable to shareholders. If the Acquisitions had occurred on May 31, 2002, the Midcap Growth Fund would have been less likely than the other Acquired Funds to make a capital gain distribution to its shareholders because its realized capital losses (equal to approximately $10 million, including current-year losses and net of current-year gains, as of May 31, 2002) exceeded its pre-Acquisition "built-in" gains (equal to approximately $4 million as of May 31, 2002). Conversely, the Galaxy Growth Fund II and the Capital Opportunities Fund would have been more likely to make capital gains distributions to their respective shareholders because their pre-Acquisition "built-in" gains (equal to approximately $14 million and $26 million, respectively, as of May 31, 2002) exceeded their realized capital losses (equal to approximately $3 million and $18 million, respectively, including current-year losses and net of current-year gains, as of May 31, 2002). The Special Fund's ability to carry forward the realized capital losses of the Midcap Growth Fund (equal to approximately $10 million, including current-year losses and net of current-year gains, as of May 31, 2002) and use them to offset future gains of the Special Fund may be limited. A portion of such capital losses may 33 become unavailable for use by the Special Fund. In addition, the Special Fund will be unable to use the Midcap Growth Fund's capital losses to offset the net pre-Acquisition "built-in" gains of the Galaxy Growth Fund II (equal to approximately $14 million as of May 31, 2002) and the Capital Opportunities Fund (equal to approximately $26 million as of May 31, 2002) during the five years following the Acquisitions, although the Midcap Growth Fund's capital losses may be used to offset its own pre-Acquisition "built-in" gains (equal to approximately $4 million as of May 31, 2002). In any event, the Midcap Growth Fund's capital losses that remain available to the Special Fund will offset capital gains accruing after the Acquisitions and thus reduce distributions to a broader group of shareholders than would have been the case absent the Acquisitions. Therefore, in certain circumstances, former shareholders of the Midcap Growth Fund may pay more taxes, or pay taxes sooner, than they would if the Acquisitions did not occur. The Special Fund's realized capital losses (equal to approximately $133 million, including current-year losses and net of current-year gains, as of May 31, 2002) cannot be used to offset pre-Acquisition "built-in" gains of the Acquired Funds (equal to approximately $14 million for the Galaxy Growth Fund II, $26 million for the Capital Opportunities Fund, and $4 million for the Midcap Growth Fund, all as of May 31, 2002) during the five years following the Acquisitions, although they may be used to offset the Special Fund's own pre-Acquisition "built-in" gains (equal to approximately $90 million as of May 31, 2002. This description of the federal income tax consequences of the Acquisitions does not take into account your particular facts and circumstances. Consult your own tax advisor about the effect of state, local, foreign, and other tax laws. GENERAL VOTING INFORMATION The Trustees of The Galaxy Fund and the Investment Trust are soliciting proxies from the shareholders of the Galaxy Growth Fund II, the Capital Opportunities Fund and the Midcap Growth Fund in connection with the Meeting, which has been called to be held at [ ] Eastern Time on [ ], at Columbia's offices, One Financial Center, Boston, Massachusetts 02111. The meeting notice, this combined Prospectus/ Proxy Statement and proxy inserts are being mailed to shareholders beginning on or about [August ], 2002. Information About Proxies and the Conduct of the Meeting Solicitation of Proxies. Proxies will be solicited primarily by mailing this combined Prospectus/Proxy Statement and its enclosures, but proxies may also be solicited through further mailings, telephone calls, personal interviews or e-mail by officers of the Galaxy Growth Fund II, the Capital Opportunities Fund or the Midcap Growth Fund or by employees or agents of Columbia and its affiliated companies. PROXY ADVANTAGE, a division of PFPC, Inc., has been engaged to assist in the solicitation of proxies, at an estimated cost of $[ ][, which will be paid by Columbia as noted below.] Voting Process. You can vote in any one of the following ways: a. By mail, by filling out and returning the enclosed proxy card; b. By phone or Internet (see enclosed proxy insert for instructions); or c. In person at the Meeting. Shareholders who owned shares on the record date, August 2, 2002, are entitled to vote at the Meeting. Shareholders of the Galaxy Growth Fund II are entitled to cast one vote for each share owned on the record date. Shareholders of the Capital Opportunities Fund and the Midcap Growth Fund are entitled to cast a number of votes equal to the net asset value of a share (or fractional share) determined at the close of business on the record date. For example, a share having a net asset value of $10.50 determined at the close of business on the record date would be entitled to 10.5 votes. If you choose to vote by mail and you are an individual 34 account owner, please sign exactly as your name appears on the proxy insert. Either owner of a joint account may sign the proxy insert, but the signer's name must exactly match the name that appears on the card. Costs. The estimated costs of the Meeting, including the costs of soliciting proxies, and the costs of the Acquisitions to be borne by the Capital Opportunities Fund and the Midcap Growth Fund are approximately $107,124 and $51,817, respectively. Columbia is also bearing a portion of such costs. This portion to be borne by Columbia is in addition to the amounts to be borne by such Funds. In the event that the shareholders of one, two or all three of the Acquired Funds do not approve the Agreement and Plan of Reorganization, or one, two or all three of the Acquisitions do not close for any reason, Columbia will bear the costs, if any, of the Acquisition or Acquisitions which would otherwise have been borne by such Funds. Voting and Tabulation of Proxies. Shares represented by duly executed proxies will be voted as instructed on the proxy. If no instructions are given, the proxy will be voted in favor of the applicable Proposal. You can revoke your proxy by sending a signed, written letter of revocation to the Secretary of your Acquired Fund, by properly executing and submitting a later-dated proxy or by attending the Meeting and voting in person. Votes cast in person or by proxy at the Meeting will be counted by persons appointed by each Acquired Fund as tellers for the Meeting (the "Tellers"). Thirty percent (30%) of the shares of each of the Capital Opportunities Fund and the Midcap Growth Fund, and more than fifty percent (50%) of the shares of the Galaxy Growth Fund II, outstanding on the record date, present in person or represented by proxy, constitute a quorum for the transaction of business by the shareholders of the respective Acquired Funds at the Meeting. In determining whether a quorum is present, the Tellers will count shares represented by proxies that reflect abstentions and "broker non-votes" as shares that are present and entitled to vote. With respect to the Galaxy Growth Fund II, these shares will not be counted as voting in favor of Proposal 1, and therefore they will have the same effect as if they cast votes against Proposal 1. With respect to the Capital Opportunities Fund and the Midcap Growth Fund, these shares will not be counted as having voted, and therefore they will have no effect on Proposal 2 or Proposal 3, as applicable. "Broker non-votes" are shares held by brokers or nominees as to which (i) the broker or nominee does not have discretionary voting power and (ii) the broker or nominee has not received instructions from the beneficial owner or other person who is entitled to instruct how the shares will be voted. Advisors' and Underwriters' Addresses. The address of the Galaxy Growth Fund II's investment advisor, Fleet Investment Advisors Inc., is 100 Federal Street, Boston, Massachusetts 02110. The address of the Capital Opportunities Fund's and the Midcap Growth Fund's investment advisor, Stein Roe & Farnham Incorporated, is One South Wacker Drive, Chicago, Illinois 60606. The address of the Special Fund's investment advisor, Columbia Funds Management Company, is 1300 S.W. Sixth Avenue, Portland, Oregon 97201. The address of the Acquired Funds' principal underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston, Massachusetts 02111. The address of the Special Fund's principal underwriter, PFPC Distributors, Inc., is 400 Bellevue Parkway, Wilmington, Delaware 19809. Outstanding Shares and Significant Shareholders. Appendix D to this Prospectus/Proxy Statement lists the total number of shares outstanding as of August 2, 2002, for each class of each Acquired Fund entitled to vote at the Meeting. It also identifies holders of more than 5% or 25% of any class of shares of each Fund, and contains information about the executive officers and Trustees of the Trusts and their shareholdings in the Funds and the Trusts and the executive officers and Directors of the Special Fund and their shareholdings in the Special Fund. Adjournments; Other Business. If any Acquired Fund has not received enough votes by the time of the Meeting to approve its Proposal, the persons named as proxies may propose that such Meeting be adjourned one or more times to permit further solicitation of proxies. Any adjournment requires the affirmative vote of a majority of the total number of shares of such Acquired Fund that are present in person or by proxy on the question when the adjournment is being voted on. The persons named as proxies will vote in favor of any such adjournment all proxies that they are entitled to vote in favor of the relevant Proposal. They will vote against any such adjournment any proxy that directs them to vote against the relevant Proposal. They will not vote any proxy that directs them to abstain from voting on the relevant Proposal. 35 The Meeting has been called to transact any business that properly comes before it. The only business that management of each Acquired Fund intends to present or knows that others will present is Proposals 1, 2 and 3. If any other matters properly come before the Meeting, and on all matters incidental to the conduct of the Meeting, the persons named as proxies intend to vote the proxies in accordance with their judgment, unless the Secretary of the relevant Acquired Fund has previously received written contrary instructions from the shareholder entitled to vote the shares. Shareholder Proposals at Future Meetings. Neither The Galaxy Fund, the Investment Trust nor the Special Fund holds annual or other regular meetings of shareholders. Shareholder proposals to be presented at any future meeting of shareholders of any Fund or Trust must be received by the relevant Fund in writing a reasonable time before the relevant Fund or Trust solicits proxies for that meeting in order to be considered for inclusion in the proxy materials for that meeting. Shareholder proposals should be sent to the relevant Fund at the address listed on the cover of this Prospectus/Proxy Statement. 36 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION RELATING TO THE ACQUISITION OF THE GALAXY GROWTH FUND II AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of July [ ], 2002, is by and among The Galaxy Fund (the "Trust"), a Massachusetts business trust established under a Declaration of Trust dated March 31, 1986, as amended, on behalf of the Galaxy Growth Fund II (the "Acquired Fund"), a series of the Trust, Columbia Special Fund, Inc., an Oregon corporation (the "Acquiring Fund"), and Columbia Management Group, Inc. ("Columbia"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Sections 361(a) and 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), and any successor provision. The reorganization will consist of the transfer of all of the assets of the Acquired Fund in exchange for Class G, Class T and Class Z shares of beneficial interest of the Acquiring Fund ("Acquisition Shares") and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other than certain expenses of the reorganization contemplated hereby) and the distribution of such Acquisition Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund, all upon the terms and conditions set forth in this Agreement. In consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND. 1.1 Subject to the terms and conditions herein set forth and on the basis of the representations and warranties contained herein, (a) The Trust, on behalf of the Acquired Fund, will transfer and deliver to the Acquiring Fund, and the Acquiring Fund will acquire, all the assets of the Acquired Fund as set forth in paragraph 1.2; (b) The Acquiring Fund will assume all of the Acquired Fund's liabilities and obligations of any kind whatsoever, whether absolute, accrued, contingent or otherwise, in existence on the Closing Date (as defined in paragraph 1.2 hereof) (the "Obligations"), except that expenses of reorganization contemplated hereby to be paid by the Acquired Fund pursuant to paragraph 9.2 shall not be assumed or paid by the Acquiring Fund; and (c) The Acquiring Fund will issue and deliver to the Acquired Fund in exchange for such assets the number of Acquisition Shares (including fractional shares, if any) determined by dividing the net asset value of the Acquired Fund, computed in the manner and as of the time and date set forth in paragraph 2.1, by the net asset value of one Acquisition Share, computed in the manner and as of the time and date set forth in paragraph 2.2. Such transactions shall take place at the closing provided for in paragraph 3.1 (the "Closing"). 1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all cash, securities, dividends and interest receivable, receivables for shares sold and all other assets which are owned by the Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing Date") and any deferred expenses, other than unamortized organizational expenses, shown as an asset on the books of the Acquired Fund on the Closing Date. 1.3 As provided in paragraph 3.4, as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to its shareholders of A-1 record ("Acquired Fund Shareholders"), determined as of the close of business on the Valuation Date (as defined in paragraph 2.1), the Acquisition Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquisition Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of Acquisition Shares due such shareholders. The Acquiring Fund shall not be obligated to issue certificates representing Acquisition Shares in connection with such exchange. 1.4 With respect to Acquisition Shares distributable pursuant to paragraph 1.3 to an Acquired Fund Shareholder holding a certificate or certificates for shares of the Acquired Fund, if any, on the Valuation Date, the Acquiring Fund will not permit such shareholder to receive Acquisition Share certificates therefor, exchange such Acquisition Shares for shares of other investment companies, effect an account transfer of such Acquisition Shares, or pledge or redeem such Acquisition Shares until the Acquiring Fund has been notified by the Acquired Fund or its agent that such Shareholder has surrendered all his or her outstanding certificates for Acquired Fund shares or, in the event of lost certificates, posted adequate bond. 1.5 As promptly as possible after the Closing Date, the Acquired Fund shall be terminated pursuant to the provisions of the laws of the Commonwealth of Massachusetts, and, after the Closing Date, the Acquired Fund shall not conduct any business except in connection with its liquidation. 1.6 Any reporting responsibility of the Acquired Fund including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission, any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, shall remain the responsibility of the Acquired Fund. 2. VALUATION. 2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets to be acquired by the Acquiring Fund hereunder shall be the net asset value computed as of the close of regular trading on the New York Stock Exchange on the business day next preceding the Closing (such time and date being herein called the "Valuation Date") using the valuation procedures set forth in the Articles of Incorporation of the Acquiring Fund and the then current prospectus or prospectuses or statement or statements of additional information of the Acquiring Fund (collectively, as amended or supplemented from time to time, the "Acquiring Fund Prospectus"). 2.2 For the purpose of paragraph 2.1, the net asset value of an Acquisition Share shall be the net asset value per share computed as of the close of regular trading on the New York Stock Exchange on the Valuation Date, using the valuation procedures set forth in the Articles of Incorporation of the Acquiring Fund and the Acquiring Fund Prospectus. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be on [ ], 2002, or on such other date as the parties may agree in writing. The Closing shall be held at 9:00 a.m. at Columbia's offices, One Financial Center, Boston, Massachusetts 02111, or at such other time and/or place as the parties may agree. 3.2 The portfolio securities of the Acquired Fund shall be made available by the Acquired Fund to State Street Bank and Trust Company, as custodian for the Acquiring Fund (the "Custodian"), for examination no later than five business days preceding the Valuation Date. On the Closing Date, such portfolio securities and all the Acquired Fund's cash shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund, such portfolio securities to be duly endorsed in proper form for transfer in such manner and condition as to constitute good delivery thereof in accordance with the custom of brokers or, in the case of portfolio securities held in the U.S. Treasury Department's book-entry system or by the Depository Trust Company, Participants Trust Company A-2 or other third party depositories, by transfer to the account of the Custodian in accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the Investment Company Act of 1940 (the "1940 Act") and accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. The cash delivered shall be in the form of currency or certified or official bank checks, payable to the order of "State Street Bank and Trust Company, custodian for Columbia Special Fund, Inc." 3.3 In the event that on the Valuation Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted, or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquired Fund or the Acquiring Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; provided that if trading shall not be fully resumed and reporting restored within three business days of the Valuation Date, this Agreement may be terminated by either of the Trust or the Acquiring Fund upon the giving of written notice to the other party. 3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver to the Acquiring Fund or its designated agent a list of the names and addresses of the Acquired Fund Shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each Acquired Fund Shareholder, all as of the close of business on the Valuation Date, certified by the Secretary or Assistant Secretary of the Trust. The Acquiring Fund will provide to the Acquired Fund evidence satisfactory to the Acquired Fund that the Acquisition Shares issuable pursuant to paragraph 1.1 have been credited to the Acquired Fund's account on the books of the Acquiring Fund. On the Liquidation Date, the Acquiring Fund will provide to the Acquired Fund evidence satisfactory to the Acquired Fund that such Acquisition Shares have been credited pro rata to open accounts in the names of the Acquired Fund Shareholders as provided in paragraph 1.3. 3.5 At the Closing each party shall deliver to the other such bills of sale, instruments of assumption of liabilities, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request in connection with the transfer of assets, assumption of liabilities and liquidation contemplated by paragraph 1. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the following to the Acquiring Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) The Trust is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission as an investment company under the 1940 Act is in full force and effect, and the Acquired Fund is a separate series thereof duly designated in accordance with the applicable provisions of the Declaration of Trust of the Trust and the 1940 Act; (c) The Trust is not in violation in any material respect of any provision of its Declaration of Trust or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust is a party or by which the Acquired Fund is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; (d) The Trust has no material contracts or other commitments (other than this Agreement and such other contracts as may be entered into in the ordinary course of its business) which if terminated may result in material liability to the Acquired Fund or under which (whether or not terminated) any material payments for periods subsequent to the Closing Date will be due from the Acquired Fund; A-3 (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquired Fund, any of its properties or assets, or any person whom the Acquired Fund may be obligated to indemnify in connection with such litigation, proceeding or investigation. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (f) The statement of assets and liabilities, the statement of operations, the statement of changes in net assets, and the schedule of investments at, as of and for the two years ended October 31, 2001, of the Acquired Fund, audited by Ernst & Young LLP, and the statement of assets and liabilities, the statement of changes in net assets and the schedule of investments for the six months ended April 30, 2002, copies of which have been furnished to the Acquiring Fund, fairly reflect the financial condition and results of operations of the Acquired Fund as of such dates and for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquired Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statements of assets referred to above or those incurred in the ordinary course of its business since April 30, 2002; (g) Since April 30, 2002, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquired Fund of indebtedness, except as disclosed in writing to the Acquiring Fund. For the purposes of this subparagraph (g), distributions of net investment income and net realized capital gains, changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (h) By the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (i) For all taxable years and all applicable quarters of such years from the date of its inception, the Acquired Fund has met the requirements of subchapter M of the Code, for treatment as a "regulated investment company" within the meaning of Section 851 of the Code. Neither the Trust nor the Acquired Fund has at any time since its inception been liable for nor is now liable for any material income or excise tax pursuant to Section 852 or 4982 of the Code. The Acquired Fund has duly filed all federal, state, local and foreign tax returns which are required to have been filed, and all taxes of the Acquired Fund which are due and payable have been paid except for amounts that alone or in the aggregate would not reasonably be expected to have a material adverse effect. The Acquired Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder; (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, $.001 par value, of multiple series and classes. All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable (except as set forth in the Acquired Fund's then current prospectus or prospectuses or statement or statements of additional information (collectively, as amended or supplemented from time to time, the "Acquired Fund Prospec- A-4 tus")) by the Acquired Fund and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. No options, warrants or other rights to subscribe for or purchase, or securities convertible into any shares of beneficial interest of the Acquired Fund are outstanding and none will be outstanding on the Closing Date; (k) The Acquired Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time, except as previously disclosed in writing to the Acquiring Fund; (l) The execution, delivery and performance of this Agreement has been duly authorized by the Trustees of the Trust, and, upon approval thereof by the required majority of the shareholders of the Acquired Fund, this Agreement will constitute the valid and binding obligation of the Acquired Fund enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (m) The Acquisition Shares to be issued to the Acquired Fund pursuant to paragraph 1 will not be acquired for the purpose of making any distribution thereof other than to the Acquired Fund Shareholders as provided in paragraph 1.3; (n) The information provided by the Acquired Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations as applicable thereto; (o) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement, except such as may be required under the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state insurance, securities or "Blue Sky" laws (which terms used herein shall include the laws of the District of Columbia and of Puerto Rico); (p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.1 and will have full right, power and authority to sell, assign, transfer and deliver the Investments (as defined below) and any other assets and liabilities of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this Agreement. At the Closing Date, subject only to the delivery of the Investments and any such other assets and liabilities and payment therefor as contemplated by this Agreement, the Acquiring Fund will acquire good and marketable title thereto and will acquire the Investments and any such other assets and liabilities subject to no encumbrances, liens or security interests whatsoever and without any restrictions upon the transfer thereof, except as previously disclosed to the Acquiring Fund. As used in this Agreement, the term "Investments" shall mean the Acquired Fund's investments shown on the schedule of its investments as of April 30, 2002, referred to in subparagraph 4.1(f) hereof, as supplemented with such changes in the portfolio as the Acquired Fund shall make, and changes resulting from stock dividends, stock split-ups, mergers and similar corporate actions through the Closing Date; (q) At the Closing Date, the Acquired Fund will have sold such of its assets, if any, as are necessary to assure that, after giving effect to the acquisition of the assets of the Acquired Fund pursuant to this Agreement, the Acquiring Fund will remain a "diversified company" within the meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory investment restrictions as are set forth in the Acquiring Fund Prospectus, as amended through the Closing Date; and A-5 (r) No registration of any of the Investments would be required if they were, as of the time of such transfer, the subject of a public distribution by either of the Acquiring Fund or the Acquired Fund, except as previously disclosed by the Acquired Fund to the Acquiring Fund. 4.2 The Acquiring Fund represents and warrants the following to the Trust and to the Acquired Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing under the laws of the State of Oregon; (b) The Acquiring Fund is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission as an investment company under the 1940 Act is in full force and effect; (c) The Acquiring Fund Prospectus conforms in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Securities and Exchange Commission thereunder and does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Acquiring Fund is a party that are not referred to in such Prospectus or in the registration statement of which it is a part; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to its assets; (e) The Acquiring Fund is not in violation in any material respect of any provisions of its Articles of Incorporation or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of its properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (g) The statement of assets and liabilities, the statement of operations, the statement of changes in assets and the schedule of investments at, as of and for the two years ended December 31, 2001, of the Acquiring Fund, audited by PricewaterhouseCoopers LLP, copies of which have been furnished to the Acquired Fund, fairly reflect the financial condition and results of operations of the Acquiring Fund as of such dates and the results of its operations for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquiring Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statements of assets referred to above or those incurred in the ordinary course of its business since December 31, 2001; (h) Since December 31, 2001, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquiring Fund of indebtedness. For the purposes of this subparagraph (h), changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (i) By the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the A-6 best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (j) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification as a regulated investment company; (k) The authorized capital of the Acquiring Fund presently consists of a single class of shares of Common Stock, $.01 par value per share. Subject to approval by shareholders of the Acquiring Fund of an amendment to its Articles of Incorporation permitting the issuance of shares in multiple classes, the outstanding shares of the Acquiring Fund at the Closing Date will be divided into Class A shares, Class B shares, Class D shares, Class G shares, Class T shares and Class Z shares, each having the characteristics described in the Acquiring Fund Prospectus. All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable (except as set forth in the Acquiring Fund Prospectus) by the Acquiring Fund, and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. Except for Class B shares which convert to Class A shares, and Class G shares which convert to Class T shares, in each case after the expiration of a period of time, no options, warrants or other rights to subscribe for or purchase, or securities convertible into, any shares of beneficial interest in the Acquiring Fund of any class are outstanding and none will be outstanding on the Closing Date; (l) The Acquiring Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time; (m) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes the valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (n) The Acquisition Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Class G, Class T and Class Z shares of beneficial interest in the Acquiring Fund, and will be fully paid and non-assessable (except as set forth in the Acquiring Fund Prospectus) by the Acquiring Fund, and no shareholder of the Acquiring Fund will have any preemptive right of subscription or purchase in respect thereof; (o) The information to be furnished by the Acquiring Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations applicable thereto; and (p) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act and state insurance, securities or "Blue Sky" laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico). A-7 5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND. The Acquiring Fund and the Trust, on behalf of the Acquired Fund, each hereby covenants and agrees with the other as follows: 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions. 5.2 (a) The Acquired Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and act upon this Agreement and take all other reasonable action necessary to obtain the required shareholder approval of the transactions contemplated hereby. (b) The Acquiring Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and act upon an amendment to the Articles of Incorporation of the Acquiring Fund permitting the Acquiring Fund to issue its shares in multiple classes. 5.3 In connection with the Acquired Fund shareholders' meeting referred to in paragraph 5.2, the Acquired Fund will prepare a Proxy Statement for such meeting, to be included in a Registration Statement on Form N-14 (the "Registration Statement") which the Acquiring Fund will prepare and file for the registration under the 1933 Act of the Acquisition Shares to be distributed to the Acquired Fund shareholders pursuant hereto, all in compliance with the applicable requirements of the 1933 Act, the 1934 Act, and the 1940 Act. 5.4 The information to be furnished by the Acquired Fund for use in the Registration Statement and the information to be furnished by the Acquiring Fund for use in the Proxy Statement, each as referred to in paragraph 5.3, shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations thereunder applicable thereto. 5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any time prior to the Closing Date the assets of the Acquired Fund include any securities which the Acquiring Fund is not permitted to acquire. 5.6 Subject to the provisions of this Agreement, the Acquired Fund and the Acquiring Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to cause the conditions to the other party's obligations to consummate the transactions contemplated hereby to be met or fulfilled and otherwise to consummate and make effective such transactions. 5.7 The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state securities or "Blue Sky" laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 6.1 The Acquiring Fund shall have delivered to the Trust a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form satisfactory to the Trust and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Acquiring Fund has complied with all the covenants and agreements and satisfied all of the conditions to be performed or satisfied by it under this Agreement at or prior to the Closing Date. A-8 6.2 The Trust shall have received a favorable opinion of Stoel Rives LLP, counsel to the Acquiring Fund for the transactions contemplated hereby, dated the Closing Date and, in a form satisfactory to the Trust, to the following effect: (a) The Acquiring Fund is a corporation duly organized and validly existing under the laws of the State of Oregon and has power to own all of its properties and assets and to carry on its business as presently conducted; (b) This Agreement has been duly authorized, executed and delivered by the Acquiring Fund and, assuming the Proxy Statement and Registration Statement referred to in paragraph 5.3 comply with applicable federal securities laws and assuming the due authorization, execution and delivery of this Agreement by the Trust on behalf of the Acquired Fund, is the valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (c) The Acquiring Fund has the power to assume the liabilities to be assumed by it hereunder and upon consummation of the transactions contemplated hereby the Acquiring Fund will have duly assumed such liabilities; (d) The Acquisition Shares to be issued for transfer to the Acquired Fund Shareholders as provided by this Agreement are duly authorized and upon such transfer and delivery will be validly issued and outstanding and fully paid and nonassessable Class G, Class T and Class Z shares of the Acquiring Fund (except as set forth in the Acquiring Fund Prospectus), and no shareholder of the Acquiring Fund has any preemptive right of subscription or purchase in respect thereof; (e) The execution and delivery of this Agreement did not, and the performance by the Acquiring Fund of its obligations hereunder will not, violate the Acquiring Fund's Articles of Incorporation or By-laws, or any provision of any agreement known to such counsel to which the Acquiring Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which the Acquiring Fund is a party or by which it is bound; (f) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement except such as may be required under state securities or "Blue Sky" laws or such as have been obtained; (g) Except as previously disclosed, pursuant to subparagraph 4.2(f) above, such counsel does not know of any legal or governmental proceedings relating to the Acquiring Fund existing on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the Closing Date required to be described in the Registration Statement referred to in paragraph 5.3 which are not described as required; (h) The Acquiring Fund is registered with the Securities and Exchange Commission as an investment company under the 1940 Act; and (i) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Acquiring Fund or any of its properties or assets and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business. A-9 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the Acquiring Fund a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Trust and the Acquired Fund have complied with all the covenants and agreements and satisfied all of the conditions on its part to be performed or satisfied under this Agreement at or prior to the Closing Date; 7.2 The Acquiring Fund shall have received a favorable opinion of [Drinker Biddle & Reath LLP], counsel to the Trust, dated the Closing Date and in a form satisfactory to the Acquiring Fund, to the following effect: (a) The Trust is a business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry on its business as presently conducted, and the Acquired Fund is a separate series thereof duly constituted in accordance with the applicable provisions of the 1940 Act and the Declaration of Trust and By-laws of the Trust; (b) This Agreement has been duly authorized, executed and delivered on behalf of the Acquired Fund and, assuming the Proxy Statement referred to in paragraph 5.3 complies with applicable federal securities laws and assuming the due authorization, execution and delivery of this Agreement by the Acquiring Fund is the valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (c) The Acquired Fund has the power to sell, assign, transfer and deliver the assets to be transferred by it hereunder, and, upon consummation of the transactions contemplated hereby, the Acquired Fund will have duly transferred such assets to the Acquiring Fund; (d) The execution and delivery of this Agreement did not, and the performance by the Trust and the Acquired Fund of their respective obligations hereunder will not, violate the Trust's Declaration of Trust or By-laws, or any provision of any agreement known to such counsel to which the Trust or the Acquired Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which the Trust or the Acquired Fund is a party or by which it is bound; (e) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Trust or the Acquired Fund of the transactions contemplated by this Agreement, except such as have been obtained; (f) Such counsel does not know of any legal or governmental proceedings relating to the Trust or the Acquired Fund existing on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the Closing Date required to be described in the Registration Statement referred to in paragraph 5.3 which are not described as required; (g) The Trust is registered with the Securities and Exchange Commission as an investment company under the 1940 Act; and A-10 (h) To the best knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Trust or the Acquired Fund or any of its properties or assets and neither the Trust nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business. 7.3 Prior to the Closing Date, the Acquired Fund shall have declared a dividend or dividends which, together with all previous dividends, shall have the effect of distributing all of the Acquired Fund's investment company taxable income for its taxable years ending on or after October 31, 2001, and on or prior to the Closing Date (computed without regard to any deduction for dividends paid), and all of its net capital gains realized in each of its taxable years ending on or after October 31, 2001, and on or prior to the Closing Date. 7.4 The Acquired Fund shall have furnished to the Acquiring Fund a certificate, signed by the President (or any Vice President) and the Treasurer of the Trust, as to the adjusted tax basis in the hands of the Acquired Fund of the securities delivered to the Acquiring Fund pursuant to this Agreement. 7.5 The custodian of the Acquired Fund shall have delivered to the Acquiring Fund a certificate identifying all of the assets of the Acquired Fund held by such custodian as of the Valuation Date. 7.6 As of the close of business on the fifth business day preceding the Closing Date, the pro forma unrealized gains of the Acquired Fund (giving effect to the transactions contemplated by this Agreement) shall not exceed 103% of the unrealized gains of the Acquiring Fund as of such date. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND THE ACQUIRED FUND. The respective obligations of the Trust and the Acquiring Fund hereunder are each subject to the further conditions that on or before the Closing Date: 8.1 (a) This Agreement and the transactions contemplated herein shall have been approved by the affirmative vote of a majority of the outstanding shares of the Acquired Fund at the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2(a). (b) An amendment to the Articles of Incorporation of the Acquiring Fund permitting the Acquiring Fund to issue its shares in multiple classes shall have been approved by the affirmative vote of a majority of the outstanding shares of the Acquiring Fund at the meeting of shareholders of the Acquiring Fund referred to in paragraph 5.2(b). 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated hereby. 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Securities and Exchange Commission and of state "Blue Sky" and securities authorities) deemed necessary by the Trust or the Acquiring Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund. 8.4 The Registration Statement referred to in paragraph 5.3 shall have become effective under the 1933 Act and no stop order suspending the effectiveness thereof shall have been issued and, to the knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. A-11 8.5 The Trust shall have received a favorable opinion of Ropes & Gray satisfactory to the Trust, and the Acquiring Fund shall have received a favorable opinion of Ropes & Gray satisfactory to the Acquiring Fund, each substantially to the effect that, for federal income tax purposes: (a) The acquisition by the Acquiring Fund of the assets of the Acquired Fund in exchange for the Acquiring Fund's assumption of the liabilities and Obligations of the Acquired Fund and issuance of the Acquisition Shares, followed by the distribution by the Acquired Fund of such Acquisition Shares to the shareholders of the Acquired Fund in exchange for their shares of the Acquired Fund, all as provided in paragraph 1 hereof, will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized by the Acquired Fund (i) upon the transfer of its assets to the Acquiring Fund in exchange for the Acquisition Shares or (ii) upon the distribution of the Acquisition Shares to the shareholders of the Acquired Fund as contemplated in paragraph 1 hereof; (c) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for the assumption of liabilities and Obligations and issuance of the Acquisition Shares as contemplated in paragraph 1 hereof; (d) The tax basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the basis of those assets in the hands of the Acquired Fund immediately prior to the transfer, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; (e) The shareholders of the Acquired Fund will recognize no gain or loss upon the exchange of all of their shares of the Acquired Fund for the Acquisition Shares; (f) The tax basis of the Acquisition Shares to be received by each shareholder of the Acquired Fund will be the same in the aggregate as the aggregate tax basis of the shares of the Acquired Fund surrendered in exchange therefor; (g) The holding period of the Acquisition Shares to be received by the shareholders of the Acquired Fund will include the period during which the shares of the Acquired Fund surrendered in exchange therefor were held, provided such shares of the Acquired Fund were held as a capital asset on the date of the exchange; and (h) The Acquiring Fund will succeed to and take into account the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. 8.6 At any time prior to the Closing, any of the foregoing conditions of this Agreement may be waived jointly by the Board of Trustees of the Trust and the Board of Directors of the Acquiring Fund if, in their judgment, such waiver will not have a material adverse effect on the interests of the shareholders of the Acquired Fund and the Acquiring Fund. 8.7 The Trust and the Acquiring Fund shall have received any necessary exemptive relief from the Securities and Exchange Commission with respect to Section 17(a) of the 1940 Act. 9. BROKERAGE FEES AND EXPENSES. 9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Fund each represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. A-12 9.2 All fees paid to governmental authorities for the registration or qualification of the Acquisition Shares and all transfer agency costs related to the Acquisition Shares shall be allocated to the Acquiring Fund. All fees and expenses related to printing, mailing, solicitation of proxies and tabulation of votes of Acquired Fund shareholders shall be allocated to the Trust, on behalf of the Acquired Fund. All of the other expenses of the transactions, including without limitation, accounting, legal and custodial expenses, contemplated by this Agreement shall be allocated equally between the Trust, on behalf of the Acquired Fund, and the Acquiring Fund. The expenses detailed above shall be borne one hundred percent (100%) by Columbia. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES. 10.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Fund agree that neither party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5, 5.4, 9, 10, 13 and 14. 11. TERMINATION. 11.1 This Agreement may be terminated by the mutual agreement of the Acquiring Fund and the Trust. In addition, either the Acquiring Fund or the Trust may at its option terminate this Agreement at or prior to the Closing Date because: (a) Of a material breach by the other of any representation, warranty, covenant or agreement contained herein to be performed by the other party at or prior to the Closing Date; (b) A condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met; or (c) Any governmental authority of competent jurisdiction shall have issued any judgment, injunction, order, ruling or decree or taken any other action restraining, enjoining or otherwise prohibiting this Agreement or the consummation of any of the transactions contemplated herein and such judgment, injunction, order, ruling, decree or other action becomes final and non-appealable; provided that the party seeking to terminate this Agreement pursuant to this Section 11.1(c) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling, decree or other action lifted, vacated or denied. If the transactions contemplated by this Agreement have not been substantially completed by [ ], 2002, this Agreement shall automatically terminate on that date unless a later date is agreed to by both the Trust and the Acquiring Fund. 11.2 If for any reason the transactions contemplated by this Agreement are not consummated, no party shall be liable to any other party for any damages resulting therefrom, including without limitation consequential damages. 12. AMENDMENTS. This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Trust on behalf of the Acquired Fund and the authorized officers of the Acquiring Fund; provided, however, that following the shareholders' meeting called by the Acquired Fund pursuant to paragraph 5.2(a), no such amendment may have the effect of changing the provisions for determining the number of the Acquisition Shares to be issued to shareholders of the Acquired Fund under this Agreement to the detriment of such shareholders without their further approval. A-13 13. NOTICES. Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by prepaid telegraph, telecopy or certified mail addressed to Galaxy Growth Fund II, c/o The Galaxy Funds, 4400 Computer Drive, Westborough, Massachusetts 01581, Attention: Secretary or to Columbia Special Fund, Inc., c/o Columbia Funds, 1301 S.W. Fifth Avenue, Portland, Oregon 97201, Attention: Secretary. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE. 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts, without giving effect to any choice or conflicts of law rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and a copy of the Articles of Incorporation of the Acquiring Fund is on file with the Secretary of State of the State of Oregon, and notice is hereby given that no trustee, director, officer, agent or employee of either the Trust or the Acquiring Fund shall have any personal liability under this Agreement, and that this Agreement is binding only upon the assets and properties of the Acquired Fund and the Acquiring Fund. A-14 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as a sealed instrument by its President or Treasurer and its corporate seal to be affixed thereto and attested by its Secretary or Assistant Secretary. THE GALAXY FUND on behalf of Galaxy Growth Fund II By: ----------------------------------- Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- COLUMBIA SPECIAL FUND, INC. By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- A-15 Solely for purposes of Paragraph 9.2 of the Agreement: COLUMBIA MANAGEMENT GROUP, INC. By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- A-16 APPENDIX B AGREEMENT AND PLAN OF REORGANIZATION RELATING TO THE ACQUISITION OF THE STEIN ROE CAPITAL OPPORTUNITIES FUND AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of July [ ], 2002, is by and among Liberty-Stein Roe Funds Investment Trust (the "Trust"), a Massachusetts business trust established under a Declaration of Trust dated January 8, 1987, as amended, on behalf of the Stein Roe Capital Opportunities Fund (including Class S and Liberty Capital Opportunities Fund, Class A) (the "Acquired Fund"), a series of the Trust, Columbia Special Fund, Inc., an Oregon corporation (the "Acquiring Fund"), and Columbia Management Group, Inc. ("Columbia"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Sections 361(a) and 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), and any successor provision. The reorganization will consist of the transfer of all of the assets of the Acquired Fund in exchange for Class A and Class Z shares of beneficial interest of the Acquiring Fund ("Acquisition Shares") and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other than certain expenses of the reorganization contemplated hereby) and the distribution of such Acquisition Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund, all upon the terms and conditions set forth in this Agreement. In consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND. 1.1 Subject to the terms and conditions herein set forth and on the basis of the representations and warranties contained herein, (a) The Trust, on behalf of the Acquired Fund, will transfer and deliver to the Acquiring Fund, and the Acquiring Fund will acquire, all the assets of the Acquired Fund as set forth in paragraph 1.2; (b) The Acquiring Fund will assume all of the Acquired Fund's liabilities and obligations of any kind whatsoever, whether absolute, accrued, contingent or otherwise, in existence on the Closing Date (as defined in paragraph 1.2 hereof) (the "Obligations"), except that expenses of reorganization contemplated hereby to be paid by the Acquired Fund pursuant to paragraph 9.2 shall not be assumed or paid by the Acquiring Fund; and (c) The Acquiring Fund will issue and deliver to the Acquired Fund in exchange for such assets the number of Acquisition Shares (including fractional shares, if any) determined by dividing the net asset value of the Acquired Fund, computed in the manner and as of the time and date set forth in paragraph 2.1, by the net asset value of one Acquisition Share, computed in the manner and as of the time and date set forth in paragraph 2.2. Such transactions shall take place at the closing provided for in paragraph 3.1 (the "Closing"). 1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all cash, securities, dividends and interest receivable, receivables for shares sold and all other assets which are owned by the Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing Date") and any deferred expenses, other than unamortized organizational expenses, shown as an asset on the books of the Acquired Fund on the Closing Date. B-1 1.3 As provided in paragraph 3.4, as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to its shareholders of record ("Acquired Fund Shareholders"), determined as of the close of business on the Valuation Date (as defined in paragraph 2.1), the Acquisition Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquisition Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of Acquisition Shares due such shareholders. The Acquiring Fund shall not be obligated to issue certificates representing Acquisition Shares in connection with such exchange. 1.4 With respect to Acquisition Shares distributable pursuant to paragraph 1.3 to an Acquired Fund Shareholder holding a certificate or certificates for shares of the Acquired Fund, if any, on the Valuation Date, the Acquiring Fund will not permit such shareholder to receive Acquisition Share certificates therefor, exchange such Acquisition Shares for shares of other investment companies, effect an account transfer of such Acquisition Shares, or pledge or redeem such Acquisition Shares until the Acquiring Fund has been notified by the Acquired Fund or its agent that such Shareholder has surrendered all his or her outstanding certificates for Acquired Fund shares or, in the event of lost certificates, posted adequate bond. 1.5 As promptly as possible after the Closing Date, the Acquired Fund shall be terminated pursuant to the provisions of the laws of the Commonwealth of Massachusetts, and, after the Closing Date, the Acquired Fund shall not conduct any business except in connection with its liquidation. 1.6 Any reporting responsibility of the Acquired Fund including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission, any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, shall remain the responsibility of the Acquired Fund. 2. VALUATION. 2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets to be acquired by the Acquiring Fund hereunder shall be the net asset value computed as of the close of regular trading on the New York Stock Exchange on the business day next preceding the Closing (such time and date being herein called the "Valuation Date") using the valuation procedures set forth in the Articles of Incorporation of the Acquiring Fund and the then current prospectus or prospectuses or statement or statements of additional information of the Acquiring Fund (collectively, as amended or supplemented from time to time, the "Acquiring Fund Prospectus"), after deduction for the expenses of the reorganization contemplated hereby to be paid by the Acquired Fund pursuant to paragraph 9.2, and shall be certified by the Acquired Fund. 2.2 For the purpose of paragraph 2.1, the net asset value of an Acquisition Share shall be the net asset value per share computed as of the close of regular trading on the New York Stock Exchange on the Valuation Date, using the valuation procedures set forth in the Articles of Incorporation of the Acquiring Fund and the Acquiring Fund Prospectus. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be on [ ], 2002, or on such other date as the parties may agree in writing. The Closing shall be held at 9:00 a.m. at Columbia's offices, One Financial Center, Boston, Massachusetts 02111, or at such other time and/or place as the parties may agree. 3.2 The portfolio securities of the Acquired Fund shall be made available by the Acquired Fund to State Street Bank and Trust Company, as custodian for the Acquiring Fund (the "Custodian"), for examination no later than five business days preceding the Valuation Date. On the Closing Date, such portfolio securities and all the Acquired Fund's cash shall be delivered by the Acquired Fund to B-2 the Custodian for the account of the Acquiring Fund, such portfolio securities to be duly endorsed in proper form for transfer in such manner and condition as to constitute good delivery thereof in accordance with the custom of brokers or, in the case of portfolio securities held in the U.S. Treasury Department's book-entry system or by the Depository Trust Company, Participants Trust Company or other third party depositories, by transfer to the account of the Custodian in accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the Investment Company Act of 1940 (the "1940 Act") and accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. The cash delivered shall be in the form of currency or certified or official bank checks, payable to the order of "State Street Bank and Trust Company, custodian for Columbia Special Fund, Inc." 3.3 In the event that on the Valuation Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted, or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquired Fund or the Acquiring Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; provided that if trading shall not be fully resumed and reporting restored within three business days of the Valuation Date, this Agreement may be terminated by either of the Trust or the Acquiring Fund upon the giving of written notice to the other party. 3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver to the Acquiring Fund or its designated agent a list of the names and addresses of the Acquired Fund Shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each Acquired Fund Shareholder, all as of the close of business on the Valuation Date, certified by the Secretary or Assistant Secretary of the Trust. The Acquiring Fund will provide to the Acquired Fund evidence satisfactory to the Acquired Fund that the Acquisition Shares issuable pursuant to paragraph 1.1 have been credited to the Acquired Fund's account on the books of the Acquiring Fund. On the Liquidation Date, the Acquiring Fund will provide to the Acquired Fund evidence satisfactory to the Acquired Fund that such Acquisition Shares have been credited pro rata to open accounts in the names of the Acquired Fund Shareholders as provided in paragraph 1.3. 3.5 At the Closing each party shall deliver to the other such bills of sale, instruments of assumption of liabilities, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request in connection with the transfer of assets, assumption of liabilities and liquidation contemplated by paragraph 1. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the following to the Acquiring Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) The Trust is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission as an investment company under the 1940 Act is in full force and effect, and the Acquired Fund is a separate series thereof duly designated in accordance with the applicable provisions of the Declaration of Trust of the Trust and the 1940 Act; (c) The Trust is not in violation in any material respect of any provision of its Declaration of Trust or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust is a party or by which the Acquired Fund is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; B-3 (d) The Trust has no material contracts or other commitments (other than this Agreement and such other contracts as may be entered into in the ordinary course of its business) which if terminated may result in material liability to the Acquired Fund or under which (whether or not terminated) any material payments for periods subsequent to the Closing Date will be due from the Acquired Fund; (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquired Fund, any of its properties or assets, or any person whom the Acquired Fund may be obligated to indemnify in connection with such litigation, proceeding or investigation. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (f) The statement of assets and liabilities, the statement of operations, the statement of changes in net assets, and the schedule of investments at, as of and for the two years ended September 30, 2001, of the Acquired Fund, audited by PricewaterhouseCoopers LLP, and the statement of assets and liabilities, the statement of changes in net assets and the schedule of investments for the six months ended March 31, 2002, copies of which have been furnished to the Acquiring Fund, fairly reflect the financial condition and results of operations of the Acquired Fund as of such dates and for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquired Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statements of assets referred to above or those incurred in the ordinary course of its business since March 31, 2002; (g) Since March 31, 2002, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquired Fund of indebtedness, except as disclosed in writing to the Acquiring Fund. For the purposes of this subparagraph (g), distributions of net investment income and net realized capital gains, changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (h) By the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (i) For all taxable years and all applicable quarters of such years from the date of its inception, the Acquired Fund has met the requirements of subchapter M of the Code, for treatment as a "regulated investment company" within the meaning of Section 851 of the Code. Neither the Trust nor the Acquired Fund has at any time since its inception been liable for nor is now liable for any material income or excise tax pursuant to Section 852 or 4982 of the Code. The Acquired Fund has duly filed all federal, state, local and foreign tax returns which are required to have been filed, and all taxes of the Acquired Fund which are due and payable have been paid except for amounts that alone or in the aggregate would not reasonably be expected to have a material adverse effect. The Acquired Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder; B-4 (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest with no par value, of multiple series and classes. All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable (except as set forth in the Acquired Fund's then current prospectus or prospectuses or statement or statements of additional information (collectively, as amended or supplemented from time to time, the "Acquired Fund Prospectus")) by the Acquired Fund and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. No options, warrants or other rights to subscribe for or purchase, or securities convertible into any shares of beneficial interest of the Acquired Fund are outstanding and none will be outstanding on the Closing Date; (k) The Acquired Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time, except as previously disclosed in writing to the Acquiring Fund; (l) The execution, delivery and performance of this Agreement has been duly authorized by the Trustees of the Trust, and, upon approval thereof by the required majority of the shareholders of the Acquired Fund, this Agreement will constitute the valid and binding obligation of the Acquired Fund enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (m) The Acquisition Shares to be issued to the Acquired Fund pursuant to paragraph 1 will not be acquired for the purpose of making any distribution thereof other than to the Acquired Fund Shareholders as provided in paragraph 1.3; (n) The information provided by the Acquired Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations as applicable thereto; (o) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement, except such as may be required under the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state insurance, securities or "Blue Sky" laws (which terms used herein shall include the laws of the District of Columbia and of Puerto Rico); (p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.1 and will have full right, power and authority to sell, assign, transfer and deliver the Investments (as defined below) and any other assets and liabilities of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this Agreement. At the Closing Date, subject only to the delivery of the Investments and any such other assets and liabilities and payment therefor as contemplated by this Agreement, the Acquiring Fund will acquire good and marketable title thereto and will acquire the Investments and any such other assets and liabilities subject to no encumbrances, liens or security interests whatsoever and without any restrictions upon the transfer thereof, except as previously disclosed to the Acquiring Fund. As used in this Agreement, the term "Investments" shall mean the Acquired Fund's investments shown on the schedule of its investments as of March 31, 2002, referred to in subparagraph 4.1(f) hereof, as supplemented with such changes in the portfolio as the Acquired Fund shall make, and changes resulting from stock dividends, stock split-ups, mergers and similar corporate actions through the Closing Date; B-5 (q) At the Closing Date, the Acquired Fund will have sold such of its assets, if any, as are necessary to assure that, after giving effect to the acquisition of the assets of the Acquired Fund pursuant to this Agreement, the Acquiring Fund will remain a "diversified company" within the meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory investment restrictions as are set forth in the Acquiring Fund Prospectus, as amended through the Closing Date; and (r) No registration of any of the Investments would be required if they were, as of the time of such transfer, the subject of a public distribution by either of the Acquiring Fund or the Acquired Fund, except as previously disclosed by the Acquired Fund to the Acquiring Fund. 4.2 The Acquiring Fund represents and warrants the following to the Trust and to the Acquired Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Acquiring Fund is a corporation duly organized and validly existing under the laws of the State of Oregon; (b) The Acquiring Fund is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission as an investment company under the 1940 Act is in full force and effect; (c) The Acquiring Fund Prospectus conforms in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Securities and Exchange Commission thereunder and does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Acquiring Fund is a party that are not referred to in such Prospectus or in the registration statement of which it is a part; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to its assets; (e) The Acquiring Fund is not in violation in any material respect of any provisions of its Articles of Incorporation or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of its properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (g) The statement of assets and liabilities, the statement of operations, the statement of changes in assets and the schedule of investments at, as of and for the two years ended December 31, 2001, of the Acquiring Fund, audited by PricewaterhouseCoopers LLP, copies of which have been furnished to the Acquired Fund, fairly reflect the financial condition and results of operations of the Acquiring Fund as of such dates and the results of its operations for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquiring Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statements of assets referred to above or those incurred in the ordinary course of its business since December 31, 2001; (h) Since December 31, 2001, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquiring Fund of indebtedness. For the purposes of this subparagraph (h), changes in portfolio securities, changes in the market value B-6 of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (i) By the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (j) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification as a regulated investment company; (k) The authorized capital of the Acquiring Fund presently consists of a single class of shares of Common Stock, $.01 par value per share. Subject to approval by shareholders of the Acquiring Fund of an amendment to its Articles of Incorporation permitting the issuance of shares in multiple classes, the outstanding shares of the Acquiring Fund at the Closing Date will be divided into Class A shares, Class B shares, Class D shares, Class G shares, Class T shares and Class Z shares, each having the characteristics described in the Acquiring Fund Prospectus. All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable (except as set forth in the Acquiring Fund Prospectus) by the Acquiring Fund, and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. Except for Class B shares which convert to Class A shares, and Class G shares which convert to Class T shares, in each case after the expiration of a period of time, no options, warrants or other rights to subscribe for or purchase, or securities convertible into, any shares of beneficial interest in the Acquiring Fund of any class are outstanding and none will be outstanding on the Closing Date; (l) The Acquiring Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time; (m) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes the valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (n) The Acquisition Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Class A and Class Z shares of beneficial interest in the Acquiring Fund, and will be fully paid and non-assessable (except as set forth in the Acquiring Fund Prospectus) by the Acquiring Fund, and no shareholder of the Acquiring Fund will have any preemptive right of subscription or purchase in respect thereof; (o) The information to be furnished by the Acquiring Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations applicable thereto; and (p) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act and state insurance, securities or "Blue Sky" laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico). B-7 5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND. The Acquiring Fund and the Trust, on behalf of the Acquired Fund, each hereby covenants and agrees with the other as follows: 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions. 5.2 (a) The Acquired Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and act upon this Agreement and take all other reasonable action necessary to obtain the required shareholder approval of the transactions contemplated hereby. (b) The Acquiring Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and act upon an amendment to the Articles of Incorporation of the Acquiring Fund permitting the Acquiring Fund to issue its shares in multiple classes. 5.3 In connection with the Acquired Fund shareholders' meeting referred to in paragraph 5.2, the Acquired Fund will prepare a Proxy Statement for such meeting, to be included in a Registration Statement on Form N-14 (the "Registration Statement") which the Acquiring Fund will prepare and file for the registration under the 1933 Act of the Acquisition Shares to be distributed to the Acquired Fund shareholders pursuant hereto, all in compliance with the applicable requirements of the 1933 Act, the 1934 Act, and the 1940 Act. 5.4 The information to be furnished by the Acquired Fund for use in the Registration Statement and the information to be furnished by the Acquiring Fund for use in the Proxy Statement, each as referred to in paragraph 5.3, shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations thereunder applicable thereto. 5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any time prior to the Closing Date the assets of the Acquired Fund include any securities which the Acquiring Fund is not permitted to acquire. 5.6 Subject to the provisions of this Agreement, the Acquired Fund and the Acquiring Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to cause the conditions to the other party's obligations to consummate the transactions contemplated hereby to be met or fulfilled and otherwise to consummate and make effective such transactions. 5.7 The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state securities or "Blue Sky" laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 6.1 The Acquiring Fund shall have delivered to the Trust a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form satisfactory to the Trust and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Acquiring Fund has complied with all the covenants and agreements and satisfied all of the conditions to be performed or satisfied by it under this Agreement at or prior to the Closing Date. B-8 6.2 The Trust shall have received a favorable opinion of Stoel Rives LLP, counsel to the Acquiring Fund for the transactions contemplated hereby, dated the Closing Date and, in a form satisfactory to the Trust, to the following effect: (a) The Acquiring Fund is a corporation duly organized and validly existing under the laws of the State of Oregon and has power to own all of its properties and assets and to carry on its business as presently conducted; (b) This Agreement has been duly authorized, executed and delivered by the Acquiring Fund and, assuming the Proxy Statement and Registration Statement referred to in paragraph 5.3 comply with applicable federal securities laws and assuming the due authorization, execution and delivery of this Agreement by the Trust on behalf of the Acquired Fund, is the valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (c) The Acquiring Fund has the power to assume the liabilities to be assumed by it hereunder and upon consummation of the transactions contemplated hereby the Acquiring Fund will have duly assumed such liabilities; (d) The Acquisition Shares to be issued for transfer to the Acquired Fund Shareholders as provided by this Agreement are duly authorized and upon such transfer and delivery will be validly issued and outstanding and fully paid and nonassessable Class A shares and Class Z shares of the Acquiring Fund (except as set forth in the Acquiring Fund Prospectus), and no shareholder of the Acquiring Fund has any preemptive right of subscription or purchase in respect thereof; (e) The execution and delivery of this Agreement did not, and the performance by the Acquiring Fund of its obligations hereunder will not, violate the Acquiring Fund's Articles of Incorporation or By-laws, or any provision of any agreement known to such counsel to which the Acquiring Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which the Acquiring Fund is a party or by which it is bound; (f) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement except such as may be required under state securities or "Blue Sky" laws or such as have been obtained; (g) Except as previously disclosed, pursuant to subparagraph 4.2(f) above, such counsel does not know of any legal or governmental proceedings relating to the Acquiring Fund existing on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the Closing Date required to be described in the Registration Statement referred to in paragraph 5.3 which are not described as required; (h) The Acquiring Fund is registered with the Securities and Exchange Commission as an investment company under the 1940 Act; and (i) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Acquiring Fund or any of its properties or assets and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business. B-9 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the Acquiring Fund a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Trust and the Acquired Fund have complied with all the covenants and agreements and satisfied all of the conditions on its part to be performed or satisfied under this Agreement at or prior to the Closing Date; 7.2 The Acquiring Fund shall have received a favorable opinion of Ropes & Gray, counsel to the Trust, dated the Closing Date and in a form satisfactory to the Acquiring Fund, to the following effect: (a) The Trust is a business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry on its business as presently conducted, and the Acquired Fund is a separate series thereof duly constituted in accordance with the applicable provisions of the 1940 Act and the Declaration of Trust and By-laws of the Trust; (b) This Agreement has been duly authorized, executed and delivered on behalf of the Acquired Fund and, assuming the Proxy Statement referred to in paragraph 5.3 complies with applicable federal securities laws and assuming the due authorization, execution and delivery of this Agreement by the Acquiring Fund is the valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (c) The Acquired Fund has the power to sell, assign, transfer and deliver the assets to be transferred by it hereunder, and, upon consummation of the transactions contemplated hereby, the Acquired Fund will have duly transferred such assets to the Acquiring Fund; (d) The execution and delivery of this Agreement did not, and the performance by the Trust and the Acquired Fund of their respective obligations hereunder will not, violate the Trust's Declaration of Trust or By-laws, or any provision of any agreement known to such counsel to which the Trust or the Acquired Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which the Trust or the Acquired Fund is a party or by which it is bound; (e) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Trust or the Acquired Fund of the transactions contemplated by this Agreement, except such as have been obtained; (f) Such counsel does not know of any legal or governmental proceedings relating to the Trust or the Acquired Fund existing on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the Closing Date required to be described in the Registration Statement referred to in paragraph 5.3 which are not described as required; (g) The Trust is registered with the Securities and Exchange Commission as an investment company under the 1940 Act; and (h) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as B-10 to the Trust or the Acquired Fund or any of its properties or assets and neither the Trust nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business. 7.3 Prior to the Closing Date, the Acquired Fund shall have declared a dividend or dividends which, together with all previous dividends, shall have the effect of distributing all of the Acquired Fund's investment company taxable income for its taxable years ending on or after September 30, 2001, and on or prior to the Closing Date (computed without regard to any deduction for dividends paid), and all of its net capital gains realized in each of its taxable years ending on or after September 30, 2001, and on or prior to the Closing Date. 7.4 The Acquired Fund shall have furnished to the Acquiring Fund a certificate, signed by the President (or any Vice President) and the Treasurer of the Trust, as to the adjusted tax basis in the hands of the Acquired Fund of the securities delivered to the Acquiring Fund pursuant to this Agreement. 7.5 The custodian of the Acquired Fund shall have delivered to the Acquiring Fund a certificate identifying all of the assets of the Acquired Fund held by such custodian as of the Valuation Date. 7.6 As of the close of business on the fifth business day preceding the Closing Date, the pro forma unrealized gains of the Acquired Fund (giving effect to the transactions contemplated by this Agreement) shall not exceed 103% of the unrealized gains of the Acquiring Fund as of such date. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND THE ACQUIRED FUND. The respective obligations of the Trust and the Acquiring Fund hereunder are each subject to the further conditions that on or before the Closing Date: 8.1 (a) This Agreement and the transactions contemplated herein shall have been approved by the affirmative vote of holders of a majority of the shares entitled to vote that are voted at the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2(a). (b) An amendment to the Articles of Incorporation of the Acquiring Fund permitting the Acquiring Fund to issue its shares in multiple classes shall have been approved by the affirmative vote of a majority of the outstanding shares of the Acquiring Fund at the meeting of shareholders of the Acquiring Fund referred to in paragraph 5.2(b). 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated hereby. 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Securities and Exchange Commission and of state "Blue Sky" and securities authorities) deemed necessary by the Trust or the Acquiring Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund. 8.4 The Registration Statement referred to in paragraph 5.3 shall have become effective under the 1933 Act and no stop order suspending the effectiveness thereof shall have been issued and, to the knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. B-11 8.5 The Trust shall have received a favorable opinion of Ropes & Gray satisfactory to the Trust, and the Acquiring Fund shall have received a favorable opinion of Ropes & Gray satisfactory to the Acquiring Fund, each substantially to the effect that, for federal income tax purposes: (a) The acquisition by the Acquiring Fund of the assets of the Acquired Fund in exchange for the Acquiring Fund's assumption of the liabilities and Obligations of the Acquired Fund and issuance of the Acquisition Shares, followed by the distribution by the Acquired Fund of such Acquisition Shares to the shareholders of the Acquired Fund in exchange for their shares of the Acquired Fund, all as provided in paragraph 1 hereof, will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized by the Acquired Fund (i) upon the transfer of its assets to the Acquiring Fund in exchange for the Acquisition Shares or (ii) upon the distribution of the Acquisition Shares to the shareholders of the Acquired Fund as contemplated in paragraph 1 hereof; (c) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for the assumption of liabilities and Obligations and issuance of the Acquisition Shares as contemplated in paragraph 1 hereof; (d) The tax basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the basis of those assets in the hands of the Acquired Fund immediately prior to the transfer, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; (e) The shareholders of the Acquired Fund will recognize no gain or loss upon the exchange of all of their shares of the Acquired Fund for the Acquisition Shares; (f) The tax basis of the Acquisition Shares to be received by each shareholder of the Acquired Fund will be the same in the aggregate as the aggregate tax basis of the shares of the Acquired Fund surrendered in exchange therefor; (g) The holding period of the Acquisition Shares to be received by the shareholders of the Acquired Fund will include the period during which the shares of the Acquired Fund surrendered in exchange therefor were held, provided such shares of the Acquired Fund were held as a capital asset on the date of the exchange; and (h) The Acquiring Fund will succeed to and take into account the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. 8.6 At any time prior to the Closing, any of the foregoing conditions of this Agreement may be waived jointly by the Board of Trustees of the Trust and the Board of Directors of the Acquiring Fund if, in their judgment, such waiver will not have a material adverse effect on the interests of the shareholders of the Acquired Fund and the Acquiring Fund. 8.7 The Trust and the Acquiring Fund shall have received any necessary exemptive relief from the Securities and Exchange Commission with respect to Section 17(a) of the 1940 Act. 9. BROKERAGE FEES AND EXPENSES. 9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Fund each represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. B-12 9.2 All fees paid to governmental authorities for the registration or qualification of the Acquisition Shares and all transfer agency costs related to the Acquisition Shares shall be allocated to the Acquiring Fund. All fees and expenses related to printing, mailing, solicitation of proxies and tabulation of votes of Acquired Fund shareholders shall be allocated to the Trust, on behalf of the Acquired Fund. All of the other expenses of the transactions, including without limitation, accounting, legal and custodial expenses, contemplated by this Agreement shall be allocated equally between the Trust, on behalf of the Acquired Fund, and the Acquiring Fund. The expenses detailed above shall be borne as follows: (a) as to expenses allocable to the Trust, on behalf of the Acquired Fund, fifty percent (50%) of such expenses shall be borne by the Acquired Fund and fifty percent (50%) by Columbia; and (b) as to expenses allocable to the Acquiring Fund, fifty percent (50%) of such expenses shall be borne by the Acquiring Fund and fifty percent (50%) by Columbia. In the event that the transactions contemplated herein are not consummated for any reason, Columbia will bear one hundred percent (100%) of the expenses set forth in this paragraph 9.2. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES. 10.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Fund agree that neither party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5, 5.4, 9, 10, 13 and 14. 11. TERMINATION. 11.1 This Agreement may be terminated by the mutual agreement of the Acquiring Fund and the Trust. In addition, either the Acquiring Fund or the Trust may at its option terminate this Agreement at or prior to the Closing Date because: (a) Of a material breach by the other of any representation, warranty, covenant or agreement contained herein to be performed by the other party at or prior to the Closing Date; (b) A condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met; or (c) Any governmental authority of competent jurisdiction shall have issued any judgment, injunction, order, ruling or decree or taken any other action restraining, enjoining or otherwise prohibiting this Agreement or the consummation of any of the transactions contemplated herein and such judgment, injunction, order, ruling, decree or other action becomes final and non-appealable; provided that the party seeking to terminate this Agreement pursuant to this Section 11.1(c) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling, decree or other action lifted, vacated or denied. If the transactions contemplated by this Agreement have not been substantially completed by [ ], 2002, this Agreement shall automatically terminate on that date unless a later date is agreed to by both the Trust and the Acquiring Fund. 11.2 If for any reason the transactions contemplated by this Agreement are not consummated, no party shall be liable to any other party for any damages resulting therefrom, including without limitation consequential damages. 12. AMENDMENTS. This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Trust on behalf of the Acquired Fund and the authorized officers of the Acquiring Fund; provided, however, that following the shareholders' meeting called by the B-13 Acquired Fund pursuant to paragraph 5.2(a), no such amendment may have the effect of changing the provisions for determining the number of the Acquisition Shares to be issued to shareholders of the Acquired Fund under this Agreement to the detriment of such shareholders without their further approval. 13. NOTICES. Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by prepaid telegraph, telecopy or certified mail addressed to Liberty-Stein Roe Funds Investment Trust, One Financial Center, Boston, Massachusetts 02111, Attention: Secretary or to Columbia Special Fund, Inc., c/o Columbia Funds, 1301 S.W. Fifth Avenue, Portland, Oregon 97201, Attention: Secretary. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE. 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts, without giving effect to any choice or conflicts of law rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and a copy of the Articles of Incorporation of the Acquiring Fund is on file with the Secretary of State of the State of Oregon, and notice is hereby given that no trustee, director, officer, agent or employee of either the Trust or the Acquiring Fund shall have any personal liability under this Agreement, and that this Agreement is binding only upon the assets and properties of the Acquired Fund and the Acquiring Fund. B-14 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as a sealed instrument by its President or Treasurer and its corporate seal to be affixed thereto and attested by its Secretary or Assistant Secretary. LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST on behalf of Stein Roe Capital Opportunities Fund Class S and Liberty Capital Opportunities Fund Class A By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- COLUMBIA SPECIAL FUND, INC. By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- B-15 Solely for purposes of Paragraph 9.2 of the Agreement: COLUMBIA MANAGEMENT GROUP, INC. By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- B-16 APPENDIX C AGREEMENT AND PLAN OF REORGANIZATION RELATING TO THE ACQUISITION OF THE LIBERTY MIDCAP GROWTH FUND AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of July [ ], 2002, is by and among Liberty-Stein Roe Funds Investment Trust (the "Trust"), a Massachusetts business trust established under a Declaration of Trust dated January 8, 1987, as amended, on behalf of the Liberty Midcap Growth Fund (including Classes A, B, C and Z and Stein Roe Midcap Growth Fund, Class S) (the "Acquired Fund"), a series of the Trust, Columbia Special Fund, Inc., an Oregon corporation (the "Acquiring Fund"), and Columbia Management Group, Inc. ("Columbia"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Sections 361(a) and 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), and any successor provision. The reorganization will consist of the transfer of all of the assets of the Acquired Fund in exchange for Class A, Class B, Class D and Class Z shares of beneficial interest of the Acquiring Fund ("Acquisition Shares") and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other than certain expenses of the reorganization contemplated hereby) and the distribution of such Acquisition Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund, all upon the terms and conditions set forth in this Agreement. In consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND. 1.1 Subject to the terms and conditions herein set forth and on the basis of the representations and warranties contained herein, (a) The Trust, on behalf of the Acquired Fund, will transfer and deliver to the Acquiring Fund, and the Acquiring Fund will acquire, all the assets of the Acquired Fund as set forth in paragraph 1.2; (b) The Acquiring Fund will assume all of the Acquired Fund's liabilities and obligations of any kind whatsoever, whether absolute, accrued, contingent or otherwise, in existence on the Closing Date (as defined in paragraph 1.2 hereof) (the "Obligations"), except that expenses of reorganization contemplated hereby to be paid by the Acquired Fund pursuant to paragraph 9.2 shall not be assumed or paid by the Acquiring Fund; and (c) The Acquiring Fund will issue and deliver to the Acquired Fund in exchange for such assets the number of Acquisition Shares (including fractional shares, if any) determined by dividing the net asset value of the Acquired Fund, computed in the manner and as of the time and date set forth in paragraph 2.1, by the net asset value of one Acquisition Share, computed in the manner and as of the time and date set forth in paragraph 2.2. Such transactions shall take place at the closing provided for in paragraph 3.1 (the "Closing"). 1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all cash, securities, dividends and interest receivable, receivables for shares sold and all other assets which are owned by the Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing Date") and C-1 any deferred expenses, other than unamortized organizational expenses, shown as an asset on the books of the Acquired Fund on the Closing Date. 1.3 As provided in paragraph 3.4, as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to its shareholders of record ("Acquired Fund Shareholders"), determined as of the close of business on the Valuation Date (as defined in paragraph 2.1), the Acquisition Shares received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquisition Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders and representing the respective pro rata number of Acquisition Shares due such shareholders. The Acquiring Fund shall not be obligated to issue certificates representing Acquisition Shares in connection with such exchange. 1.4 With respect to Acquisition Shares distributable pursuant to paragraph 1.3 to an Acquired Fund Shareholder holding a certificate or certificates for shares of the Acquired Fund, if any, on the Valuation Date, the Acquiring Fund will not permit such shareholder to receive Acquisition Share certificates therefor, exchange such Acquisition Shares for shares of other investment companies, effect an account transfer of such Acquisition Shares, or pledge or redeem such Acquisition Shares until the Acquiring Fund has been notified by the Acquired Fund or its agent that such Shareholder has surrendered all his or her outstanding certificates for Acquired Fund shares or, in the event of lost certificates, posted adequate bond. 1.5 As promptly as possible after the Closing Date, the Acquired Fund shall be terminated pursuant to the provisions of the laws of the Commonwealth of Massachusetts, and, after the Closing Date, the Acquired Fund shall not conduct any business except in connection with its liquidation. 1.6 Any reporting responsibility of the Acquired Fund including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission, any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, shall remain the responsibility of the Acquired Fund. 2. VALUATION. 2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets to be acquired by the Acquiring Fund hereunder shall be the net asset value computed as of the close of regular trading on the New York Stock Exchange on the business day next preceding the Closing (such time and date being herein called the "Valuation Date") using the valuation procedures set forth in the Articles of Incorporation of the Acquiring Fund and the then current prospectus or prospectuses or statement or statements of additional information of the Acquiring Fund (collectively, as amended or supplemented from time to time, the "Acquiring Fund Prospectus"), after deduction for the expenses of the reorganization contemplated hereby to be paid by the Acquired Fund pursuant to paragraph 9.2, and shall be certified by the Acquired Fund. 2.2 For the purpose of paragraph 2.1, the net asset value of an Acquisition Share shall be the net asset value per share computed as of the close of regular trading on the New York Stock Exchange on the Valuation Date, using the valuation procedures set forth in the Articles of Incorporation of the Acquiring Fund and the Acquiring Fund Prospectus. 3. CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be on [ ], 2002, or on such other date as the parties may agree in writing. The Closing shall be held at 9:00 a.m. at Columbia's offices, One Financial Center, Boston, Massachusetts 02111, or at such other time and/or place as the parties may agree. 3.2 The portfolio securities of the Acquired Fund shall be made available by the Acquired Fund to State Street Bank and Trust Company, as custodian for the Acquiring Fund (the "Custodian"), for C-2 examination no later than five business days preceding the Valuation Date. On the Closing Date, such portfolio securities and all the Acquired Fund's cash shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund, such portfolio securities to be duly endorsed in proper form for transfer in such manner and condition as to constitute good delivery thereof in accordance with the custom of brokers or, in the case of portfolio securities held in the U.S. Treasury Department's book-entry system or by the Depository Trust Company, Participants Trust Company or other third party depositories, by transfer to the account of the Custodian in accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the Investment Company Act of 1940 (the "1940 Act") and accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. The cash delivered shall be in the form of currency or certified or official bank checks, payable to the order of "State Street Bank and Trust Company, custodian for Columbia Special Fund, Inc." 3.3 In the event that on the Valuation Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted, or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquired Fund or the Acquiring Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; provided that if trading shall not be fully resumed and reporting restored within three business days of the Valuation Date, this Agreement may be terminated by either of the Trust or the Acquiring Fund upon the giving of written notice to the other party. 3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver to the Acquiring Fund or its designated agent a list of the names and addresses of the Acquired Fund Shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each Acquired Fund Shareholder, all as of the close of business on the Valuation Date, certified by the Secretary or Assistant Secretary of the Trust. The Acquiring Fund will provide to the Acquired Fund evidence satisfactory to the Acquired Fund that the Acquisition Shares issuable pursuant to paragraph 1.1 have been credited to the Acquired Fund's account on the books of the Acquiring Fund. On the Liquidation Date, the Acquiring Fund will provide to the Acquired Fund evidence satisfactory to the Acquired Fund that such Acquisition Shares have been credited pro rata to open accounts in the names of the Acquired Fund Shareholders as provided in paragraph 1.3. 3.5 At the Closing each party shall deliver to the other such bills of sale, instruments of assumption of liabilities, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request in connection with the transfer of assets, assumption of liabilities and liquidation contemplated by paragraph 1. 4. REPRESENTATIONS AND WARRANTIES. 4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the following to the Acquiring Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) The Trust is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission as an investment company under the 1940 Act is in full force and effect, and the Acquired Fund is a separate series thereof duly designated in accordance with the applicable provisions of the Declaration of Trust of the Trust and the 1940 Act; (c) The Trust is not in violation in any material respect of any provision of its Declaration of Trust or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to C-3 which the Trust is a party or by which the Acquired Fund is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; (d) The Trust has no material contracts or other commitments (other than this Agreement and such other contracts as may be entered into in the ordinary course of its business) which if terminated may result in material liability to the Acquired Fund or under which (whether or not terminated) any material payments for periods subsequent to the Closing Date will be due from the Acquired Fund; (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquired Fund, any of its properties or assets, or any person whom the Acquired Fund may be obligated to indemnify in connection with such litigation, proceeding or investigation. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (f) The statement of assets and liabilities, the statement of operations, the statement of changes in net assets, and the schedule of investments at, as of and for the two years ended September 30, 2001, of the Acquired Fund, audited by PricewaterhouseCoopers LLP, and the statement of assets and liabilities, the statement of changes in net assets and the schedule of investments for the six months ended March 31, 2002, copies of which have been furnished to the Acquiring Fund, fairly reflect the financial condition and results of operations of the Acquired Fund as of such dates and for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquired Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statements of assets referred to above or those incurred in the ordinary course of its business since March 31, 2002; (g) Since March 31, 2002, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquired Fund of indebtedness, except as disclosed in writing to the Acquiring Fund. For the purposes of this subparagraph (g), distributions of net investment income and net realized capital gains, changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (h) By the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (i) For all taxable years and all applicable quarters of such years from the date of its inception, the Acquired Fund has met the requirements of subchapter M of the Code, for treatment as a "regulated investment company" within the meaning of Section 851 of the Code. Neither the Trust nor the Acquired Fund has at any time since its inception been liable for nor is now liable for any material income or excise tax pursuant to Section 852 or 4982 of the Code. The Acquired Fund has duly filed all federal, state, local and foreign tax returns which are required to have been filed, and all taxes of the Acquired Fund which are due and payable have been paid except for amounts that alone or in the aggregate would not reasonably be expected to have a material adverse effect. The Acquired Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in C-4 respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder; (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest with no par value, of multiple series and classes. All issued and outstanding shares of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable (except as set forth in the Acquired Fund's then current prospectus or prospectuses or statement or statements of additional information (collectively, as amended or supplemented from time to time, the "Acquired Fund Prospectus")) by the Acquired Fund and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. Except for Class B shares which convert to Class A shares after the expiration of a period of time, no options, warrants or other rights to subscribe for or purchase, or securities convertible into any shares of beneficial interest of the Acquired Fund are outstanding and none will be outstanding on the Closing Date; (k) The Acquired Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time, except as previously disclosed in writing to the Acquiring Fund; (l) The execution, delivery and performance of this Agreement has been duly authorized by the Trustees of the Trust, and, upon approval thereof by the required majority of the shareholders of the Acquired Fund, this Agreement will constitute the valid and binding obligation of the Acquired Fund enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (m) The Acquisition Shares to be issued to the Acquired Fund pursuant to paragraph 1 will not be acquired for the purpose of making any distribution thereof other than to the Acquired Fund Shareholders as provided in paragraph 1.3; (n) The information provided by the Acquired Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations as applicable thereto; (o) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement, except such as may be required under the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state insurance, securities or "Blue Sky" laws (which terms used herein shall include the laws of the District of Columbia and of Puerto Rico); (p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.1 and will have full right, power and authority to sell, assign, transfer and deliver the Investments (as defined below) and any other assets and liabilities of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this Agreement. At the Closing Date, subject only to the delivery of the Investments and any such other assets and liabilities and payment therefor as contemplated by this Agreement, the Acquiring Fund will acquire good and marketable title thereto and will acquire the Investments and any such other assets and liabilities subject to no encumbrances, liens or security interests whatsoever and without any restrictions upon the transfer thereof, except as previously disclosed to the Acquiring Fund. As used in this Agreement, the term "Investments" shall mean the Acquired Fund's investments shown on the schedule of its investments as of March 31, 2002, referred to in subparagraph 4.1(f) C-5 hereof, as supplemented with such changes in the portfolio as the Acquired Fund shall make, and changes resulting from stock dividends, stock split-ups, mergers and similar corporate actions through the Closing Date; (q) At the Closing Date, the Acquired Fund will have sold such of its assets, if any, as are necessary to assure that, after giving effect to the acquisition of the assets of the Acquired Fund pursuant to this Agreement, the Acquiring Fund will remain a "diversified company" within the meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory investment restrictions as are set forth in the Acquiring Fund Prospectus, as amended through the Closing Date; and (r) No registration of any of the Investments would be required if they were, as of the time of such transfer, the subject of a public distribution by either of the Acquiring Fund or the Acquired Fund, except as previously disclosed by the Acquired Fund to the Acquiring Fund. 4.2 The Acquiring Fund represents and warrants the following to the Trust and to the Acquired Fund as of the date hereof and agrees to confirm the continuing accuracy and completeness in all material respects of the following on the Closing Date: (a) The Acquiring Fund is a corporation duly organized and validly existing under the laws of the State of Oregon; (b) The Acquiring Fund is a duly registered investment company classified as a management company of the open-end type and its registration with the Securities and Exchange Commission as an investment company under the 1940 Act is in full force and effect; (c) The Acquiring Fund Prospectus conforms in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Securities and Exchange Commission thereunder and does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Acquiring Fund is a party that are not referred to in such Prospectus or in the registration statement of which it is a part; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to its assets; (e) The Acquiring Fund is not in violation in any material respect of any provisions of its Articles of Incorporation or By-laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound, and the execution, delivery and performance of this Agreement will not result in any such violation; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of its properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated hereby; (g) The statement of assets and liabilities, the statement of operations, the statement of changes in assets and the schedule of investments at, as of and for the two years ended December 31, 2001, of the Acquiring Fund, audited by PricewaterhouseCoopers LLP, copies of which have been furnished to the Acquired Fund, fairly reflect the financial condition and results of operations of the Acquiring Fund as of such dates and the results of its operations for the periods then ended in accordance with generally accepted accounting principles consistently applied, and the Acquiring Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on the statements of assets referred to above or those incurred in the ordinary course of its business since December 31, 2001; C-6 (h) Since December 31, 2001, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business), or any incurrence by the Acquiring Fund of indebtedness. For the purposes of this subparagraph (h), changes in portfolio securities, changes in the market value of portfolio securities or net redemptions shall be deemed to be in the ordinary course of business; (i) By the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law to have been filed by such date (giving effect to extensions) shall have been filed, and all federal and other taxes shown to be due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns; (j) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification as a regulated investment company; (k) The authorized capital of the Acquiring Fund presently consists of a single class of shares of Common Stock, $.01 par value per share. Subject to approval by shareholders of the Acquiring Fund of an amendment to its Articles of Incorporation permitting the issuance of shares in multiple classes, the outstanding shares of the Acquiring Fund at the Closing Date will be divided into Class A shares, Class B shares, Class D shares, Class G shares, Class T shares and Class Z shares, each having the characteristics described in the Acquiring Fund Prospectus. All issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable (except as set forth in the Acquiring Fund Prospectus) by the Acquiring Fund, and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws. Except for Class B shares which convert to Class A shares, and Class G shares which convert to Class T shares, in each case after the expiration of a period of time, no options, warrants or other rights to subscribe for or purchase, or securities convertible into, any shares of beneficial interest in the Acquiring Fund of any class are outstanding and none will be outstanding on the Closing Date; (l) The Acquiring Fund's investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus or prospectuses and statement or statements of additional information as in effect from time to time; (m) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes the valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (n) The Acquisition Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Class A, Class B, Class D and Class Z shares of beneficial interest in the Acquiring Fund, and will be fully paid and non-assessable (except as set forth in the Acquiring Fund Prospectus) by the Acquiring Fund, and no shareholder of the Acquiring Fund will have any preemptive right of subscription or purchase in respect thereof; (o) The information to be furnished by the Acquiring Fund for use in the Registration Statement and Proxy Statement referred to in paragraph 5.3 shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations applicable thereto; and C-7 (p) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act and state insurance, securities or "Blue Sky" laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico). 5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND. The Acquiring Fund and the Trust, on behalf of the Acquired Fund, each hereby covenants and agrees with the other as follows: 5.1 The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions. 5.2 (a) The Acquired Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and act upon this Agreement and take all other reasonable action necessary to obtain the required shareholder approval of the transactions contemplated hereby. (b) The Acquiring Fund will call a meeting of its shareholders to be held prior to the Closing Date to consider and act upon an amendment to the Articles of Incorporation of the Acquiring Fund permitting the Acquiring Fund to issue its shares in multiple classes. 5.3 In connection with the Acquired Fund shareholders' meeting referred to in paragraph 5.2, the Acquired Fund will prepare a Proxy Statement for such meeting, to be included in a Registration Statement on Form N-14 (the "Registration Statement") which the Acquiring Fund will prepare and file for the registration under the 1933 Act of the Acquisition Shares to be distributed to the Acquired Fund shareholders pursuant hereto, all in compliance with the applicable requirements of the 1933 Act, the 1934 Act, and the 1940 Act. 5.4 The information to be furnished by the Acquired Fund for use in the Registration Statement and the information to be furnished by the Acquiring Fund for use in the Proxy Statement, each as referred to in paragraph 5.3, shall be accurate and complete in all material respects and shall comply with federal securities and other laws and regulations thereunder applicable thereto. 5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any time prior to the Closing Date the assets of the Acquired Fund include any securities which the Acquiring Fund is not permitted to acquire. 5.6 Subject to the provisions of this Agreement, the Acquired Fund and the Acquiring Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to cause the conditions to the other party's obligations to consummate the transactions contemplated hereby to be met or fulfilled and otherwise to consummate and make effective such transactions. 5.7 The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state securities or "Blue Sky" laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 6.1 The Acquiring Fund shall have delivered to the Trust a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form satisfactory to the Trust and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as C-8 they may be affected by the transactions contemplated by this Agreement, and that the Acquiring Fund has complied with all the covenants and agreements and satisfied all of the conditions to be performed or satisfied by it under this Agreement at or prior to the Closing Date. 6.2 The Trust shall have received a favorable opinion of Stoel Rives LLP, counsel to the Acquiring Fund for the transactions contemplated hereby, dated the Closing Date and, in a form satisfactory to the Trust, to the following effect: (a) The Acquiring Fund is a corporation duly organized and validly existing under the laws of the State of Oregon and has power to own all of its properties and assets and to carry on its business as presently conducted; (b) This Agreement has been duly authorized, executed and delivered by the Acquiring Fund and, assuming the Proxy Statement and Registration Statement referred to in paragraph 5.3 comply with applicable federal securities laws and assuming the due authorization, execution and delivery of this Agreement by the Trust on behalf of the Acquired Fund, is the valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (c) The Acquiring Fund has the power to assume the liabilities to be assumed by it hereunder and upon consummation of the transactions contemplated hereby the Acquiring Fund will have duly assumed such liabilities; (d) The Acquisition Shares to be issued for transfer to the Acquired Fund Shareholders as provided by this Agreement are duly authorized and upon such transfer and delivery will be validly issued and outstanding and fully paid and nonassessable Class A, Class B, Class D and Class Z shares of the Acquiring Fund (except as set forth in the Acquiring Fund Prospectus), and no shareholder of the Acquiring Fund has any preemptive right of subscription or purchase in respect thereof; (e) The execution and delivery of this Agreement did not, and the performance by the Acquiring Fund of its obligations hereunder will not, violate the Acquiring Fund's Articles of Incorporation or By-laws, or any provision of any agreement known to such counsel to which the Acquiring Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which the Acquiring Fund is a party or by which it is bound; (f) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement except such as may be required under state securities or "Blue Sky" laws or such as have been obtained; (g) Except as previously disclosed, pursuant to subparagraph 4.2(f) above, such counsel does not know of any legal or governmental proceedings relating to the Acquiring Fund existing on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the Closing Date required to be described in the Registration Statement referred to in paragraph 5.3 which are not described as required; (h) The Acquiring Fund is registered with the Securities and Exchange Commission as an investment company under the 1940 Act; and (i) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Acquiring Fund or any of its properties or assets and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business. C-9 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, to the following further conditions: 7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the Acquiring Fund a certificate executed in its name by its President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and that the Trust and the Acquired Fund have complied with all the covenants and agreements and satisfied all of the conditions on its part to be performed or satisfied under this Agreement at or prior to the Closing Date; 7.2 The Acquiring Fund shall have received a favorable opinion of Ropes & Gray, counsel to the Trust, dated the Closing Date and in a form satisfactory to the Acquiring Fund, to the following effect: (a) The Trust is a business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts and has power to own all of its properties and assets and to carry on its business as presently conducted, and the Acquired Fund is a separate series thereof duly constituted in accordance with the applicable provisions of the 1940 Act and the Declaration of Trust and By-laws of the Trust; (b) This Agreement has been duly authorized, executed and delivered on behalf of the Acquired Fund and, assuming the Proxy Statement referred to in paragraph 5.3 complies with applicable federal securities laws and assuming the due authorization, execution and delivery of this Agreement by the Acquiring Fund is the valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and other equitable principles; (c) The Acquired Fund has the power to sell, assign, transfer and deliver the assets to be transferred by it hereunder, and, upon consummation of the transactions contemplated hereby, the Acquired Fund will have duly transferred such assets to the Acquiring Fund; (d) The execution and delivery of this Agreement did not, and the performance by the Trust and the Acquired Fund of their respective obligations hereunder will not, violate the Trust's Declaration of Trust or By-laws, or any provision of any agreement known to such counsel to which the Trust or the Acquired Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which the Trust or the Acquired Fund is a party or by which it is bound; (e) To the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Trust or the Acquired Fund of the transactions contemplated by this Agreement, except such as have been obtained; (f) Such counsel does not know of any legal or governmental proceedings relating to the Trust or the Acquired Fund existing on or before the date of mailing of the Proxy Statement referred to in paragraph 5.3 or the Closing Date required to be described in the Registration Statement referred to in paragraph 5.3 which are not described as required; (g) The Trust is registered with the Securities and Exchange Commission as an investment company under the 1940 Act; and (h) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as C-10 to the Trust or the Acquired Fund or any of its properties or assets and neither the Trust nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business. 7.3 Prior to the Closing Date, the Acquired Fund shall have declared a dividend or dividends which, together with all previous dividends, shall have the effect of distributing all of the Acquired Fund's investment company taxable income for its taxable years ending on or after September 30, 2001, and on or prior to the Closing Date (computed without regard to any deduction for dividends paid), and all of its net capital gains realized in each of its taxable years ending on or after September 30, 2001, and on or prior to the Closing Date. 7.4 The Acquired Fund shall have furnished to the Acquiring Fund a certificate, signed by the President (or any Vice President) and the Treasurer of the Trust, as to the adjusted tax basis in the hands of the Acquired Fund of the securities delivered to the Acquiring Fund pursuant to this Agreement. 7.5 The custodian of the Acquired Fund shall have delivered to the Acquiring Fund a certificate identifying all of the assets of the Acquired Fund held by such custodian as of the Valuation Date. 7.6 As of the close of business on the fifth business day preceding the Closing Date, the pro forma unrealized gains of the Acquired Fund (giving effect to the transactions contemplated by this Agreement) shall not exceed 103% of the unrealized gains of the Acquiring Fund as of such date. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND THE ACQUIRED FUND. The respective obligations of the Trust and the Acquiring Fund hereunder are each subject to the further conditions that on or before the Closing Date: 8.1 (a) This Agreement and the transactions contemplated herein shall have been approved by the affirmative vote of holders of a majority of the shares entitled to vote that are voted at the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2(a). (b) An amendment to the Articles of Incorporation of the Acquiring Fund permitting the Acquiring Fund to issue its shares in multiple classes shall have been approved by the affirmative vote of a majority of the outstanding shares of the Acquiring Fund at the meeting of shareholders of the Acquiring Fund referred to in paragraph 5.2(b). 8.2 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated hereby. 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Securities and Exchange Commission and of state "Blue Sky" and securities authorities) deemed necessary by the Trust or the Acquiring Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund. 8.4 The Registration Statement referred to in paragraph 5.3 shall have become effective under the 1933 Act and no stop order suspending the effectiveness thereof shall have been issued and, to the knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. C-11 8.5 The Trust shall have received a favorable opinion of Ropes & Gray satisfactory to the Trust, and the Acquiring Fund shall have received a favorable opinion of Ropes & Gray satisfactory to the Acquiring Fund, each substantially to the effect that, for federal income tax purposes: (a) The acquisition by the Acquiring Fund of the assets of the Acquired Fund in exchange for the Acquiring Fund's assumption of the liabilities and Obligations of the Acquired Fund and issuance of the Acquisition Shares, followed by the distribution by the Acquired Fund of such Acquisition Shares to the shareholders of the Acquired Fund in exchange for their shares of the Acquired Fund, all as provided in paragraph 1 hereof, will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Acquiring Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized by the Acquired Fund (i) upon the transfer of its assets to the Acquiring Fund in exchange for the Acquisition Shares or (ii) upon the distribution of the Acquisition Shares to the shareholders of the Acquired Fund as contemplated in paragraph 1 hereof; (c) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for the assumption of liabilities and Obligations and issuance of the Acquisition Shares as contemplated in paragraph 1 hereof; (d) The tax basis of the assets of the Acquired Fund acquired by the Acquiring Fund will be the same as the basis of those assets in the hands of the Acquired Fund immediately prior to the transfer, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund; (e) The shareholders of the Acquired Fund will recognize no gain or loss upon the exchange of all of their shares of the Acquired Fund for the Acquisition Shares; (f) The tax basis of the Acquisition Shares to be received by each shareholder of the Acquired Fund will be the same in the aggregate as the aggregate tax basis of the shares of the Acquired Fund surrendered in exchange therefor; (g) The holding period of the Acquisition Shares to be received by the shareholders of the Acquired Fund will include the period during which the shares of the Acquired Fund surrendered in exchange therefor were held, provided such shares of the Acquired Fund were held as a capital asset on the date of the exchange; and (h) The Acquiring Fund will succeed to and take into account the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. 8.6 At any time prior to the Closing, any of the foregoing conditions of this Agreement may be waived jointly by the Board of Trustees of the Trust and the Board of Directors of the Acquiring Fund if, in their judgment, such waiver will not have a material adverse effect on the interests of the shareholders of the Acquired Fund and the Acquiring Fund. 8.7 The Trust and the Acquiring Fund shall have received any necessary exemptive relief from the Securities and Exchange Commission with respect to Section 17(a) of the 1940 Act. 9. BROKERAGE FEES AND EXPENSES. 9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Fund each represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. C-12 9.2 All fees paid to governmental authorities for the registration or qualification of the Acquisition Shares and all transfer agency costs related to the Acquisition Shares shall be allocated to the Acquiring Fund. All fees and expenses related to printing, mailing, solicitation of proxies and tabulation of votes of Acquired Fund shareholders shall be allocated to the Trust, on behalf of the Acquired Fund. All of the other expenses of the transactions, including without limitation, accounting, legal and custodial expenses, contemplated by this Agreement shall be allocated equally between the Trust, on behalf of the Acquired Fund, and the Acquiring Fund. The expenses detailed above shall be borne as follows: (a) as to expenses allocable to the Trust, on behalf of the Acquired Fund, fifty percent (50%) of such expenses shall be borne by the Acquired Fund and fifty percent (50%) by Columbia; and (b) as to expenses allocable to the Acquiring Fund, fifty percent (50%) of such expenses shall be borne by the Acquiring Fund and fifty percent (50%) by Columbia. In the event that the transactions contemplated herein are not consummated for any reason, Columbia will bear one hundred percent (100%) of the expenses set forth in this paragraph 9.2. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES. 10.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Fund agree that neither party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5, 5.4, 9, 10, 13 and 14. 11. TERMINATION. 11.1 This Agreement may be terminated by the mutual agreement of the Acquiring Fund and the Trust. In addition, either the Acquiring Fund or the Trust may at its option terminate this Agreement at or prior to the Closing Date because: (a) Of a material breach by the other of any representation, warranty, covenant or agreement contained herein to be performed by the other party at or prior to the Closing Date; (b) A condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met; or (c) Any governmental authority of competent jurisdiction shall have issued any judgment, injunction, order, ruling or decree or taken any other action restraining, enjoining or otherwise prohibiting this Agreement or the consummation of any of the transactions contemplated herein and such judgment, injunction, order, ruling, decree or other action becomes final and non-appealable; provided that the party seeking to terminate this Agreement pursuant to this Section 11.1(c) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling, decree or other action lifted, vacated or denied. If the transactions contemplated by this Agreement have not been substantially completed by [ ], 2002, this Agreement shall automatically terminate on that date unless a later date is agreed to by both the Trust and the Acquiring Fund. 11.2 If for any reason the transactions contemplated by this Agreement are not consummated, no party shall be liable to any other party for any damages resulting therefrom, including without limitation consequential damages. 12. AMENDMENTS. This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Trust on behalf of the Acquired Fund and the authorized officers of the Acquiring Fund; provided, however, that following the shareholders' meeting called by the C-13 Acquired Fund pursuant to paragraph 5.2(a), no such amendment may have the effect of changing the provisions for determining the number of the Acquisition Shares to be issued to shareholders of the Acquired Fund under this Agreement to the detriment of such shareholders without their further approval. 13. NOTICES. Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by prepaid telegraph, telecopy or certified mail addressed to Liberty-Stein Roe Funds Investment Trust, One Financial Center, Boston, Massachusetts 02111, Attention: Secretary or to Columbia Special Fund, Inc., c/o Columbia Funds, 1301 S.W. Fifth Avenue, Portland, Oregon 97201, Attention: Secretary. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE. 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts, without giving effect to any choice or conflicts of law rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and a copy of the Articles of Incorporation of the Acquiring Fund is on file with the Secretary of State of the State of Oregon, and notice is hereby given that no trustee, director, officer, agent or employee of either the Trust or the Acquiring Fund shall have any personal liability under this Agreement, and that this Agreement is binding only upon the assets and properties of the Acquired Fund and the Acquiring Fund. C-14 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as a sealed instrument by its President or Treasurer and its corporate seal to be affixed thereto and attested by its Secretary or Assistant Secretary. LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST on behalf of Liberty Midcap Growth Fund Classes A, B, C and Z and Stein Roe Midcap Growth Fund Class S By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- COLUMBIA SPECIAL FUND, INC. By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- C-15 Solely for purposes of Paragraph 9.2 of the Agreement: COLUMBIA MANAGEMENT GROUP, INC. By: ------------------------------------ Name: ---------------------------------- Title: ----------------------------------- ATTEST: - --------------------------------------------------------- Name: ------------------------------------------------------- Title: ------------------------------------------------------- C-16 APPENDIX D FUND INFORMATION SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE GALAXY GROWTH FUND II, THE CAPITAL OPPORTUNITIES FUND AND THE MIDCAP GROWTH FUND For each class of each Acquired Fund's shares entitled to vote at the Meeting, the number of shares outstanding as of August 2, 2002, was as follows:
NUMBER OF SHARES OUTSTANDING AND FUND CLASS ENTITLED TO VOTE - ---- -------- ---------------- GALAXY GROWTH FUND II..................... Retail A Retail B Trust STEIN ROE FUND............................ A S MIDCAP GROWTH FUND........................ A B C S Z
OWNERSHIP OF SHARES As of August 2, 2002, the Investment Trust believes that the Trustees and officers of the Investment Trust, as a group, owned less than one percent of each class of shares of the Capital Opportunities Fund and the Midcap Growth Fund and of the Trust as a whole, The Galaxy Fund believes that the Trustees and officers of The Galaxy Fund, as a group, owned less than one percent of each class of shares of the Galaxy Growth Fund II and of The Galaxy Fund as a whole, and the Special Fund believes that the Directors and officers of the Special Fund, as a group, owned less than one percent of the shares of the Special Fund. As of August 2, 2002, the following shareholders of record owned 5% or more of the outstanding shares of the noted class of shares of the noted Fund:
NUMBER OF PERCENTAGE OF OUTSTANDING OUTSTANDING SHARES OF CLASS SHARES OF CLASS FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OWNED OWNED - -------------- ------------------------------- --------------- --------------- GALAXY GROWTH FUND II Retail A.................. Retail B.................. Trust Shares.............. CAPITAL OPPORTUNITIES FUND Class A................... Class S................... MIDCAP GROWTH FUND Class A................... Class B................... Class C................... Class S................... Class Z...................
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NUMBER OF PERCENTAGE OF OUTSTANDING OUTSTANDING SHARES OF CLASS SHARES OF CLASS FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OWNED OWNED - -------------- ------------------------------- --------------- --------------- SPECIAL FUND Existing Shares...........
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION As of August 2, 2002, the shareholders of record that owned 5% or more of the outstanding shares of the noted class of shares of the noted Fund would own the following percentage of the Special Fund upon consummation of the Acquisition:
PERCENTAGE OF OUTSTANDING SHARES OF CLASS OWNED UPON CONSUMMATION OF FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION - -------------- ------------------------------- --------------------- GALAXY GROWTH FUND II Retail A............................. Retail B............................. Trust Shares......................... CAPITAL OPPORTUNITIES FUND Class A.............................. Class S.............................. MIDCAP GROWTH FUND Class A.............................. Class B.............................. Class C.............................. Class S.............................. Class Z.............................. SPECIAL FUND Existing Shares......................
D-2 APPENDIX E CAPITALIZATION The following table shows on an unaudited basis the capitalization of each of the Galaxy Growth Fund II, the Capital Opportunities Fund, the Midcap Growth Fund and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Acquired Funds by the Special Fund at net asset value as of that date.
CAPITAL SPECIAL FUND GALAXY GROWTH OPPORTUNITIES MIDCAP SPECIAL PRO FORMA PRO FORMA FUND II FUND GROWTH FUND FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------- ----------- ------------ --------------- -------------- Retail A Net asset value............... $35,750,293 $ (35,750,293) Shares outstanding............ 3,914,005 (3,914,005) Net asset value per share..... $ 9.13 Retail B Net asset value............... $ 989,514 $ (989,514) Shares outstanding............ 109,794 (109,794) Net asset value per share..... $ 9.01 Trust Shares Net asset value............... $47,676,447 $ (47,676,447) Shares outstanding............ 5,175,885 (5,175,885) Net asset value per share..... $ 9.21 Class A Net asset value............... $ 2,519 $1,366,080 $ (1,850)(3) $ 1,366,749 Shares outstanding............ 119 141,534 (67,252) 74,401 Net asset value per share..... $ 21.25 $ 9.52 $ 18.37 Class B Net asset value............... $4,294,602 $ (5,814)(3) $ 4,288,788 Shares outstanding............ 451,154 (217,687) 233,467 Net asset value per share..... $ 9.52 $ 18.37 Class C Net asset value............... $ 403,629 $ (403,629) Shares outstanding............ 42,470 (42,470) Net asset value per share..... $ 9.50 Class D Net asset value............... $ 403,083(3) $ 403,083 Shares outstanding............ 21,942 21,942 Net asset value per share..... $ 18.37 Class G Net asset value............... $ 989,514 $ 989,514 Shares outstanding............ 53,866 53,866 Net asset value per share..... $ 18.37 Class S Net asset value............... $275,896,840 $32,197,937 $ (308,094,777) Shares outstanding............ 12,912,307 3,325,260 (16,237,567) Net asset value per share..... $ 21.37 $ 9.68
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CAPITAL SPECIAL FUND GALAXY GROWTH OPPORTUNITIES MIDCAP SPECIAL PRO FORMA PRO FORMA FUND II FUND GROWTH FUND FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------- ----------- ------------ --------------- -------------- Class T Net asset value............... $ 35,750,293 $ 35,750,293 Shares outstanding............ 1,946,124 1,946,124 Net asset value per share..... $ 18.37 Class Z Net asset value............... $ 14,726 $ 1,076,142,348(3) $1,076,157,074 Shares outstanding............ 1,522 58,572,814 58,574,336 Net asset value per share..... $ 9.68 $ 18.37 Existing Shares(4) Net asset value............... $720,521,855 $ (720,521,855) Shares outstanding............ 39,213,969 (39,213,969) Net asset value per share..... $ 18.37
- --------------- (1) Assumes the Acquisitions were consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of each Acquired Fund on the date the Acquisitions take place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class A, Class B, Class D, Class G or Class T shares of the Special Fund outstanding. Retail A, Retail B and Trust Shares of the Galaxy Growth Fund II will be exchanged for Class T, Class G and Class Z shares, respectively, of the Special Fund upon consummation of the Acquisitions; Class A and Class S shares of the Capital Opportunities Fund will be exchanged for Class A and Class Z shares, respectively, of the Special Fund upon consummation of the Acquisitions; and Class A, Class B, Class C, Class S and Class Z shares of the Midcap Growth Fund will be exchanged for Class A, Class B, Class D, Class Z and Class Z shares, respectively, of the Special Fund upon consummation of the Acquisitions. (3) Adjustment reflect one time proxy, accounting, legal and other costs of the reorganization of $107,124 and $51,817 to be borne by the Capital Opportunities Fund and the Midcap Growth Fund, respectively. (4) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-2 CAPITALIZATION The following table shows on an unaudited basis the capitalization of the Galaxy Growth Fund II and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Galaxy Growth Fund II, but not the Capital Opportunities Fund and not the Midcap Growth Fund, by the Special Fund at net asset value as of that date.
SPECIAL FUND GALAXY GROWTH PRO FORMA PRO FORMA FUND II SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------ ------------- -------------- Retail A Net asset value.................. $ 35,750,293 $ (35,750,293) Shares outstanding............... 3,914,005 (3,914,005) Net asset value per share........ $ 9.13 Retail B Net asset value.................. $ 989,514 $ (989,514) Shares outstanding............... 109,794 (109,794) Net asset value per share........ $ 9.01 Trust Shares Net asset value.................. $ 47,676,447 $ (47,676,447) Shares outstanding............... 5,175,885 (5,175,885) Net asset value per share........ $ 9.21 Class G Net asset value.................. $ 989,514 $ 989,514 Shares outstanding............... 53,866 53,866 Net asset value per share........ 18.37 Class T Net asset value.................. $ 35,750,293 $ 35,750,293 Shares outstanding............... 1,946,124 1,946,124 Net asset value per share........ $ 18.37 Class Z Net asset value.................. $ 768,198,302 $768,198,302 Shares outstanding............... 41,809,312 41,809,312 Net asset value per share........ $ 18.37 Existing Shares(3) Net asset value.................. $720,521,855 $(720,521,855) Shares outstanding............... 39,213,969 (39,213,969) Net asset value per share........ $ 18.37
- --------------- (1) Assumes the Acquisition was consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of the Galaxy Growth Fund II on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class G or Class T shares of the Special Fund outstanding. Retail A, Retail B and Trust Shares of the Galaxy Growth Fund II will be exchanged for Class T, Class G and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. (3) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-3 CAPITALIZATION The following table shows on an unaudited basis the capitalization of the Capital Opportunities Fund and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Capital Opportunities Fund, but not the Galaxy Growth Fund II and not the Midcap Growth Fund, by the Special Fund at net asset value as of that date.
CAPITAL SPECIAL FUND OPPORTUNITIES PRO FORMA PRO FORMA FUND SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------ ------------- -------------- Class A Net asset value................. $ 2,519 $ (1)(3) $ 2,518 Shares outstanding.............. 119 137 256 Net asset value per share....... $ 21.25 $ 18.37 Class S Net asset value................. $275,896,840 $(275,896,840) Shares outstanding.............. 12,912,307 (12,912,307) Net asset value per share....... $ 21.37 Class Z Net asset value................. $ 996,311,572(3) $996,311,572 Shares outstanding.............. 54,227,018 54,227,018 Net asset value per share....... $ 18.37 Existing Shares(4) Net asset value................. $720,521,855 $(720,521,855) Shares outstanding.............. 39,213,969 (39,213,969) Net asset value per share....... $ 18.37
- --------------- (1) Assumes the Acquisition was consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of the Capital Opportunities Fund on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class A shares of the Special Fund outstanding. Class A and Class S shares of the Capital Opportunities Fund will be exchanged for Class A and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. (3) Adjustments reflect one time proxy, accounting, legal and other costs of the reorganization of $107,124 to be borne by the Capital Opportunities Fund. (4) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-4 CAPITALIZATION The following table shows on an unaudited basis the capitalization of the Midcap Growth Fund and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Midcap Growth Fund, but not the Galaxy Growth Fund II and not the Capital Opportunities Fund, by the Special Fund at net asset value as of that date.
SPECIAL FUND MIDCAP PRO FORMA PRO FORMA GROWTH FUND SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ----------- ------------ ------------- -------------- Class A Net asset value.................... $ 1,366,080 $ (1,849)(3) $ 1,364,231 Shares outstanding................. 141,534 (67,270) 74,264 Net asset value per share.......... $ 9.65 $ 18.37 Class B Net asset value.................... $ 4,294,602 $ (5,814)(3) $ 4,288,788 Shares outstanding................. 451,154 (217,687) 233,467 Net asset value per share.......... $ 9.52 $ 18.37 Class C Net asset value.................... $ 403,629 $ (403,629) Shares outstanding................. 42,470 (42,470) Net asset value per share.......... $ 9.50 Class D Net asset value.................... $ 403,083(3) $ 403,083 Shares outstanding................. 21,942 21,942 Net asset value per share.......... $ 18.37 Class S Net asset value.................... $32,197,937 $ (32,197,937) Shares outstanding................. 3,325,260 (3,325,260) Net asset value per share.......... $ 9.68 Class Z Net asset value.................... $ 14,726 $ 752,676,184(3) $752,690,910 Shares outstanding................. 1,522 40,963,620 40,965,142 Net asset value per share.......... $ 9.68 $ 18.37 Existing Shares(4) Net asset value.................... $720,521,855 $(720,521,855) Shares outstanding................. 39,213,969 (39,213,969) Net asset value per share.......... $ 18.37
- --------------- (1) Assumes the Acquisition was consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of the Midcap Growth Fund on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class A, Class B or Class D shares of the Special Fund outstanding. Class A, Class B, Class C, Class S and Class Z shares of the Midcap Growth Fund will be exchanged for Class A, Class B, Class D, Class Z and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. (3) Adjustments reflect one time proxy, accounting, legal and other costs of the reorganization of $51,817 to be borne by the Midcap Growth Fund. (4) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-5 CAPITALIZATION The following table shows on an unaudited basis the capitalization of the Galaxy Growth Fund II, the Capital Opportunities Fund and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Galaxy Growth Fund II and the Capital Opportunities Fund, but not the Midcap Growth Fund, by the Special Fund at net asset value as of that date.
CAPITAL SPECIAL FUND GALAXY GROWTH OPPORTUNITIES PRO FORMA PRO FORMA FUND II FUND SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------- ------------ -------------- -------------- Retail A Net asset value........... $35,750,293 $ (35,750,293) Shares outstanding........ 3,914,005 (3,914,005) Net asset value per share................... $ 9.13 Retail B Net asset value........... $ 989,514 $ (989,514) Shares outstanding........ 109,794 (109,794) Net asset value per share................... $ 9.01 Trust Shares Net asset value........... $47,676,447 $ (47,676,447) Shares outstanding........ 5,175,885 (5,175,885) Net asset value per share................... $ 9.21 Class A Net asset value........... $ 2,519 $ (1)(3) $ 2,518 Shares outstanding........ 119 18 137 Net asset value per share................... $ 21.25 $ 18.37 Class G Net asset value........... $ 989,514 $ 989,514 Shares outstanding........ 53,866 53,866 Net asset value per share................... $ 18.37 Class S Net asset value........... $275,896,840 $ (275,896,840) Shares outstanding........ 12,912,307 (12,912,307) Net asset value per share................... $ 21.37 Class T Net asset value........... $ 35,750,293 $ 35,750,293 Shares outstanding........ 1,946,124 1,946,124 Net asset value per share................... $ 18.37 Class Z Net asset value........... $1,043,988,019(3) $1,043,988,019 Shares outstanding........ 56,822,361 56,822,361 Net asset value per share................... $ 18.37 Existing Shares(4) Net asset value........... $720,521,855 $ (720,521,855) Shares outstanding........ 39,213,969 (39,213,969) Net asset value per share................... $ 18.37
- --------------- (1) Assumes the Acquisition was consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of the Galaxy Growth Fund II and the Capital Opportunities Fund on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class A, Class G or Class T shares of the Special Fund outstanding. Retail A, Retail B and Trust Shares of the Galaxy Growth Fund II will be exchanged for Class T, Class G and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. Class A and Class S shares of the Capital Opportunities Fund will be exchanged for Class A and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. (3) Adjustments reflect one time proxy, accounting, legal and other costs of the reorganization of $107,124 to be borne by the Capital Opportunities Fund. (4) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-6 CAPITALIZATION The following table shows on an unaudited basis the capitalization of the Galaxy Growth Fund II, the Midcap Growth Fund and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Galaxy Growth Fund II and the Midcap Growth Fund, but not the Capital Opportunities Fund, by the Special Fund at net asset value as of that date.
SPECIAL FUND GALAXY GROWTH MIDCAP GROWTH PRO FORMA PRO FORMA FUND II FUND SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------- ------------ ------------- -------------- Retail A Net asset value................. $35,750,293 $ (35,750,293) Shares outstanding.............. 3,914,005 (3,914,005) Net asset value per share....... $ 9.13 Retail B Net asset value................. $ 989,514 $ (989,514) Shares outstanding.............. 109,794 (109,794) Net asset value per share....... $ 9.01 Trust Shares Net asset value................. $47,676,447 $ (47,676,447) Shares outstanding.............. 5,175,885 (5,175,885) Net asset value per share....... $ 9.21 Class A Net asset value................. $ 1,366,080 $ (1,849)(3) $ 1,364,231 Shares outstanding.............. 141,534 (67,270) 74,264 Net asset value per share....... $ 9.65 $ 18.37 Class B Net asset value................. $ 4,294,602 $ (5,814)(3) $ 4,288,788 Shares outstanding.............. 451,154 (217,687) 233,467 Net asset value per share....... $ 9.52 $ 18.37 Class C Net asset value................. $ 403,629 $ (403,629) Shares outstanding.............. 42,470 (42,470) Net asset value per share....... $ 9.50 Class D Net asset value................. $ 403,083(3) $ 403,083 Shares outstanding.............. 21,942 21,942 Net asset value per share....... $ 18.37 Class G Net asset value................. $ 989,514 $ 989,514 Shares outstanding.............. 53,866 53,866 Net asset value per share....... $ 18.37 Class S Net asset value................. $32,197,937 $ (32,197,937) Shares outstanding.............. 3,325,260 (3,325,260) Net asset value per share....... $ 9.68 Class T Net asset value................. $ 35,750,293 $35,750,293 Shares outstanding.............. 1,946,124 1,946,124 Net asset value per share....... $ 18.37
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SPECIAL FUND GALAXY GROWTH MIDCAP GROWTH PRO FORMA PRO FORMA FUND II FUND SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------- ------------ ------------- -------------- Class Z Net asset value................. $ 14,726 $ 800,352,631(3) $800,367,357 Shares outstanding.............. 1,522 43,558,963 43,560,485 Net asset value per share....... $ 9.68 $ 18.37 Existing Shares(4) Net asset value................. $720,521,855 $(720,521,855) Shares outstanding.............. 39,213,969 (39,213,969) Net asset value per share....... $ 18.37
- --------------- (1) Assumes the Acquisition was consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of the Galaxy Growth Fund II and the Midcap Growth Fund on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class A, Class B, Class D, Class G or Class T shares of the Special Fund outstanding. Retail A, Retail B and Trust Shares of the Galaxy Growth Fund II will be exchanged for Class T, Class G and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. Class A, Class B, Class C, Class S and Class Z shares of the Midcap Growth Fund will be exchanged for Class A, Class B, Class D, Class Z and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. (3) Adjustments reflect one time proxy, accounting, legal and other costs of the reorganization of $51,817 to be borne by the Midcap Growth Fund. (4) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-8 CAPITALIZATION The following table shows on an unaudited basis the capitalization of the Capital Opportunities Fund, the Midcap Growth Fund and the Special Fund as of May 31, 2002, and on a pro forma combined basis, giving effect to the acquisition of the assets and liabilities of the Capital Opportunities Fund and the Midcap Growth Fund, but not the Galaxy Growth Fund II, by the Special Fund at net asset value as of that date.
CAPITAL SPECIAL FUND OPPORTUNITIES MIDCAP GROWTH PRO FORMA PRO FORMA FUND FUND SPECIAL FUND ADJUSTMENTS COMBINED(1)(2) ------------- ------------- ------------ --------------- -------------- Class A Net asset value............ $ 2,519 $ 1,366,080 $ (1,850)(3) $ 1,366,749 Shares outstanding......... 119 141,534 (67,252) 74,401 Net asset value per share.................... $ 21.25 $ 9.65 $ 18.37 Class B Net asset value............ $ 4,294,602 $ (5,814)(3) $ 4,288,788 Shares outstanding......... 451,154 (217,687) 233,467 Net asset value per share.................... $ 9.52 $ 18.37 Class C Net asset value............ $ 403,629 $ (403,629) Shares outstanding......... 42,470 (42,470) Net asset value per share.................... $ 9.50 Class D Net asset value............ $ 403,083(3) $ 403,083 Shares outstanding......... 21,942 21,942 Net asset value per share.................... $ 18.37 Class S Net asset value............ $275,896,840 $32,197,937 $ (308,094,777)(3) Shares outstanding......... 12,912,307 3,325,260 (16,237,567) Net asset value per share.................... $ 21.37 $ 9.68 Class Z Net asset value............ $ 14,726 $ 1,028,465,901(3) $1,028,480,627 Shares outstanding......... 1,522 55,976,670 55,978,192 Net asset value per share.................... $ 9.68 $ 18.37 Existing Shares(4) Net asset value............ $720,521,855 $ (720,521,855) Shares outstanding......... 39,213,969 (39,213,969) Net asset value per share.................... $ 18.37
- --------------- (1) Assumes the Acquisition was consummated on May 31, 2002, and is for information purposes only. No assurance can be given as to how many shares of the Special Fund will be received by the shareholders of the Capital Opportunities Fund and the Midcap Growth Fund on the date the Acquisition takes place, and the foregoing should not be relied upon to reflect the number of shares of the Special Fund that actually will be received on or after such date. (2) Assumes shares will be exchanged based on the net asset value per share of the existing shares of the Special Fund on May 31, 2002. As of May 31, 2002, there were no Class A, Class B or Class D shares of the Special Fund outstanding. Class A and Class S shares of the Capital Opportunities Fund will be exchanged for Class A and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. Class A, Class B, Class C, Class S and Class Z shares of the Midcap Growth Fund will be exchanged for Class A, Class B, Class D, Class Z and Class Z shares of the Special Fund, respectively, upon consummation of the Acquisition. (3) Adjustment reflect one time proxy, accounting, legal and other costs of the reorganization of $107,124 and $51,817 to be borne by the Capital Opportunities Fund and the Midcap Growth Fund, respectively. (4) Existing shares of the Special Fund will be redesignated Class Z shares at the time of the Acquisitions. E-9 APPENDIX F MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE FOR COLUMBIA SPECIAL FUND, INC. F-1 COLUMBIA SPECIAL FUND PERFORMANCE REFLECTS VOLATILE MARKET The year 2001 was challenging for mid-cap growth stocks. Columbia Special Fund returned -20.98% for the 12 months ended December 31. In comparison, the Russell Midcap Index returned -5.62% and the Russell Midcap Growth Index returned -20.15%. Over the long term, the Fund has remained competitive with its benchmarks: on an average annual basis, the Fund has returned 12.82% for the 10 years ended December 31, 2001, while the Russell Midcap and the Russell Midcap Growth indices have returned 13.58% and 11.10%, respectively. STOCKS UNDER PRESSURE A rapid deterioration in the economy placed stocks under pressure for most of 2001. Earnings expectations were continuously downgraded, and companies responded to the slowdown by laying off workers, reducing inventories and cutting capital expenditures. Software valuations were especially hard hit as spending on IT was slashed. More defensive areas, like health care, found favor with investors. As the Fed began cutting rates early in the year, a brief rally in cyclical stocks, such as technology, took place. However, as the economy continued to worsen, sentiment returned toward non-cyclical issues. With the economy already on shaky ground, the terrorist attacks of 9/11 only served to exacerbate the decline. Stocks sold off sharply in the following weeks, and an anticipated economic recovery was delayed. However, a surprisingly strong market recovery took place in the fourth quarter, with technology posting some of the largest gains. Considering the significant fiscal and monetary stimulus packages introduced over the course of the year, as well as the progress with the war on terrorism, investors have come to believe that the worst is over and a recovery is on the horizon. DEFENSIVE ISSUES FIND FAVOR In the first half of the year, health care and consumer-related stocks performed well for the Fund. Compared to other sectors, health care is not as sensitive to changes in the economic environment. Also, despite the slowdown, consumers maintained their spending habits and, for a time, helped delay the inevitable recession. Early in the second half, we raised the cash position of the Fund and continued to increase our weighting in the health care sector, seeking issues in specialty pharmaceuticals, biotechnology, medical devices, and hospitals and services. We felt these companies would have high earnings visibility and compelling growth prospects in 2002. We also selectively added to technology while reducing our energy holdings. We slowly put cash to work in the fourth quarter, adding to technology and retail, areas that we think will experience strong earnings recovery in 2002 as the economy improves. The technology sector rallied in the quarter and was one of the best performing sectors in the period. Holdings in Rational Software, Peoplesoft, Siebel Systems and Veritas Software enhanced the Fund's performance. Toward the end of the quarter, however, we stopped adding to our technology holdings since valuations became expensive after the rally. On a correction or on increased visibility for earnings, we would anticipate adding to our holdings in technology again. Though energy was a strong performing sector in 2000, it proved detrimental to the Fund in 2001. We consistently reduced our exposure to this area over the course of the year as prices on oil and natural gas fell due to a decline in demand. F-2 IMPROVED PROSPECTS FOR 2002 Though the market may be ahead of itself in anticipating a strong recovery in the near-term, we do believe that the economy will find its footing in the coming year and we anticipate a rebound in late 2002. Richard J. Johnson Portfolio Manager AVERAGE ANNUAL TOTAL RETURNS As of December 31, 2001
RUSSELL RUSSELL MIDCAP CSF MIDCAP GROWTH ------ ------- ------- 1 Year................................................... (20.98)% (5.62)% (20.15)% 5 Years.................................................. 10.01% 11.40% 9.02% 10 Years................................................. 12.82% 13.58% 11.10%
TOP TEN HOLDINGS % of Net Assets
12/31/01 6/30/01 -------- ------- WellPoint Health Networks, Inc.............................. 2.5 0.8 Sepracor, Inc............................................... 2.3 -- Caremark Rx, Inc............................................ 2.2 1.3 ANDRX Group................................................. 2.2 1.6 Intuit, Inc................................................. 2.1 1.6 MedImmune, Inc.............................................. 2.1 -- Boston Scientific Corp...................................... 2.1 1.0 HealthSouth Corp............................................ 2.0 -- Gemstar-TV Guide International, Inc......................... 1.9 0.5 Martin Marietta Materials, Inc.............................. 1.9 1.7
TOP FIVE SECTORS % of Net Assets
12/31/01 6/30/01 -------- ------- Health Care................................................. 35.9 22.1 Consumer Discretionary & Services........................... 26.3 22.1 Technology.................................................. 14.5 19.3 Producer Durables........................................... 7.4 4.1 Financial Services.......................................... 4.9 5.4
F-3 GROWTH OF $10,000 OVER 10 YEARS
RUSSELL RUSSELL RUSSELL MIDCAP RUSSELL MIDCAP PERIOD ENDING CSF MIDCAP GROWTH CSF MIDCAP GROWTH - ------------- ------ ------- ------- ------- ------- ------- 12/31/91.................. 0.00 0.00 0.00 $10,000 $10,000 $10,000 12/31/92.................. 13.70 16.34 8.71 11,370 11,634 10,871 12/31/93.................. 21.68 14.30 11.19 13,835 13,298 12,087 12/31/94.................. 2.29 (2.09) (2.16) 14,152 13,020 11,826 12/31/95.................. 29.53 34.46 33.98 18,331 17,506 15,845 12/31/96.................. 13.07 19.00 17.48 20,727 20,833 18,615 12/31/97.................. 12.64 29.01 22.54 23,347 26,876 22,810 12/31/98.................. 16.64 10.09 17.87 27,231 29,588 26,887 12/31/99.................. 36.33 18.23 51.29 37,125 34,982 40,677 12/31/00.................. 13.84 8.25 (11.75) 42,263 37,868 35,897 12/31/01.................. (20.98) (5.62) (20.15) $33,398 $35,740 $28,655
F-4 APPENDIX G INFORMATION APPLICABLE TO MERGER SHARES INFORMATION APPLICABLE TO CLASS A, B AND D SHARES ONLY 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 they believe that doing so would be in the best interest of the Fund and its shareholders. 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 a Fund. These sales charges are described below. In certain circumstances, these sales charges may be waived, as described below. CHOOSING A SHARE CLASS The Funds generally offer 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. Purchases of more than $250,000 but less than $1 million can be made only in Class A or Class D shares. Purchases of $1 million or more are automatically invested in Class A shares. Based on your personal situation, your investment advisor can help you decide which class of shares makes the most sense for you. The Small Cap, Equity, Managed Income & Equity and Contrarian Income Funds also offer an additional class of shares, Class I shares, exclusively to certain institutional and high net worth investors. Class I shares are made available through a separate prospectus provided to eligible investors. G-1 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 additional investments 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 tables below.
% OF OFFERING PRICE AS A % OF RETAINED BY THE PUBLIC AS A % FINANCIAL OFFERING OF YOUR ADVISOR AMOUNT OF PURCHASE PRICE INVESTMENT 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 through a fee-based program. For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows: PURCHASES OVER $1 MILLION:
AMOUNT PURCHASED COMMISSION % - ---------------- ------------ 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 reaches a sales charge discount level (according to the chart above), 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, G-2 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 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 below. PURCHASES OF LESS THAN $250,000:
% DEDUCTED WHEN HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD - ----------------------------- --------------- Through first year.......................................... 5.00 Through second year......................................... 4.00 Through third year.......................................... 3.00 Through fourth year......................................... 3.00 Through fifth year.......................................... 2.00 Through sixth year.......................................... 1.00 Longer than six years....................................... 0.00
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 the 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:
% 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. PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
% 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. G-3 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 applicable to the non-participating financial advisor. CLASS D SHARES Your purchases of Class D shares are at Class D's net asset value. Class D shares carry a front-end sales charge of 1.00% and 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.
% DEDUCTED WHEN YEARS AFTER PURCHASE SHARES ARE SOLD - -------------------- --------------- Through first year.......................................... 1.00 Longer than one year........................................ 0.00
How to Exchange Shares You may exchange your shares of the Columbia Special Fund 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. 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 realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES ONLY INVESTMENT MINIMUMS Initial Investment.......................................... $1,000 Subsequent Investments...................................... $ 50 Automatic Investment Plan*.................................. $ 50 Retirement Plan*............................................ $ 25
- --------------- * The initial investment minimum of $1,000 is waived on these plans. Usually, you must keep at least $250 in your account other than retirement plan accounts. If your account falls below $250 because you sell or exchange shares, Liberty may redeem your shares and close your account. Liberty will give you 60 days notice in writing before closing your account. G-4 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 they believe that doing so would be in the best interest of the Fund and its shareholders. CLASS T SHARES Your purchases of Class T 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 T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below. CLASS T SALES CHARGES
% OF OFFERING PRICE AS A % OF RETAINED BY THE PUBLIC AS A % FINANCIAL OFFERING OF YOUR ADVISOR AMOUNT OF PURCHASE PRICE INVESTMENT FIRM - ------------------ ---------- ---------- ----------- Less than $50,000................................... [5.75] [6.01] [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 T shares bought without an initial sales charge in accounts aggregating $1 million or more at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase, unless the shares were sold because of the death or the disability of the shareholder or withdrawn through Liberty's Systematic Withdrawal Plan in an amount that does not annually exceed 12% of the account's value. Subsequent Class T share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month following each purchase. The CDSC does not apply to retirement plans purchasing through a fee-based program. THERE IS NO SALES CHARGE WHEN YOU BUY CLASS T SHARES IF: - YOU BUY SHARES BY REINVESTING YOUR DIVIDENDS AND DISTRIBUTIONS. - YOU BUY SHARES WITH MONEY FROM ANOTHER LIBERTY FUND ON WHICH YOU HAVE ALREADY PAID A SALES CHARGE (AS LONG AS YOU BUY THE NEW SHARES WITHIN 90 DAYS AFTER SELLING YOUR OTHER SHARES). - YOU ARE AN INVESTMENT PROFESSIONAL WHO PLACES TRADES FOR YOUR CLIENTS AND CHARGES THEM A FEE. - YOU BUY SHARES UNDER AN ALL-INCLUSIVE FEE PROGRAM (SOMETIMES CALLED A "WRAP FEE PROGRAM") OFFERED BY A BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. - YOU WERE A GALAXY SHAREHOLDER BEFORE DECEMBER 1, 1995. - YOU WERE SHAREHOLDER OF THE BOSTON 1784 FUNDS ON THE DATE WHEN THE FUNDS WERE REORGANIZED INTO GALAXY. G-5 [For Class T 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 T share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding. For Class T 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 T 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 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 G SHARES Your purchases of Class G shares are at Class G's net asset value. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the 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 G shares as described in the charts below. CDSCs for Class G shares received in exchange for Retail B shares of the Galaxy Fund that were purchased prior to January 1, 2001: CLASS G 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]
G-6 CDSCs for Class G shares received in exchange for Retail B shares of the Galaxy Fund that were purchased on or after January 1, 2001:
% DEDUCTED WHEN HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD - ----------------------------- --------------- Through first year.......................................... [5.00] Through second year......................................... [4.00] Through third year.......................................... [4.00] Through fourth year......................................... [4.00] Through fifth year.......................................... [3.00] Through sixth year.......................................... [2.00] Through seventh year........................................ [1.00] Longer than seven years..................................... [None]
Commission to financial advisors is _.__%. Class G shares received in exchange for Retail B shares of the Galaxy Fund that were purchased prior to January 1, 2001 will automatically convert to Class T shares six years after purchase. Class G shares received in exchange for Retail B shares of the Galaxy Fund that were purchased on or after January 1, 2001 will automatically convert to Class T shares eight years after purchase. How to Exchange Shares You may exchange your Class T shares for Class A or Class T shares, and may exchange your Class G shares for Class B or Class G shares, 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. Class T and G shares, once exchanged for Class A or Class B shares, may not be further exchanged for Class T or G shares. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. INFORMATION APPLICABLE TO CLASS Z SHARES ONLY Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. The Eligible Investors described below are subject to different minimum initial investment requirements. Eligible Investors and their applicable investment minimums are as follows: $1,000 minimum initial investment - employees (and their family members), directors and certain shareholders connected with the Columbia Funds; - any shareholder of a Stein Roe Fund (i) whose shares were redesignated as Class Z shares or who received Class Z shares of another fund distributed by Liberty Funds Distributor, Inc. in exchange for his or her shares in the Stein Roe Fund in connection with a reorganization involving such Stein Roe Fund and the other fund, and (ii) who has since then continued to own shares of any funds distributed by Liberty Funds Distributor, Inc.; - 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.; G-7 - any trustee of Liberty Acorn Trust, any employee of Liberty Wanger Asset Management, L.P., or a member of the family of such trustee or employee; and - any person or entity listed in the account registration for any account (such as joint owners, trustees, custodians and designated beneficiaries) that held shares of any of the funds of Liberty Acorn Trust on September 29, 2000 and that has since then continued to own shares of any fund 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 the Special 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 - a retirement plan (or the custodian for such plan) with aggregate plan assets of at least $5 million at the time of purchase and which purchases shares directly from the distributor or through a third-party broker-dealer; - 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; and - qualified accounts of financial institutions, including affiliates of Fleet Boston Financial. The Fund reserves the right to change the criteria for eligible investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders. How to Exchange Shares You may exchange Class Z shares of the Fund for Class Z shares or Class A shares of another fund distributed by Liberty Funds Distributor, Inc. at net asset value. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. To exchange by telephone, call 1-800-422-3737. INFORMATION APPLICABLE TO CLASS A, B, D, G, T AND Z SHARES 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. G-8
METHOD INSTRUCTIONS - ------ ------------ Through your financial advisor.......... Your financial advisor can help you establish your account and buy Fund shares on your behalf. To receive the current trading day's price, your financial advisor firm must receive your request prior to the close of the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time. Your financial advisor may charge you fees for executing the purchase for you. By check (new account).................. For new accounts send a completed application and check made payable to the Fund to the transfer agent, Liberty Funds Services, Inc., P.O. Box 8081, Boston, MA 02105-8081. By check (existing account)............. For existing accounts fill out and return the additional investment stub included in your quarterly statement, or send a letter of instruction including your Fund name and account number with a check made payable to the Fund to Liberty Funds Services, Inc., P.O. Box 8081, Boston, MA 02105-8081. By exchange............................. You or your financial advisor may acquire shares 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 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 transfer............ You may purchase shares by electronically transferring money from your bank account to your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to settle and be considered in "good form." You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the application. Automatic investment plan............... You can make monthly or quarterly investments automatically from your bank account to your Fund account. You can select a pre-authorized amount to be sent via electronic funds transfer. Be sure to complete the appropriate section of the application for this feature.
G-9
METHOD INSTRUCTIONS - ------ ------------ Automated dollar cost averaging......... You can purchase shares for your 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. 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.
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, if applicable, 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 in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
METHOD INSTRUCTIONS - ------ ------------ Through your financial advisor.......... You may call your financial advisor to place your sell order. To receive the current trading day's price, your financial advisor 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 a Fund into the same share class of another fund at no additional cost. To exchange by telephone, call 1-800-422-3737.
G-10
METHOD INSTRUCTIONS - ------ ------------ By telephone............................ You or your financial advisor may sell shares by telephone and request that a check be sent to your address of record by calling 1-800-422-3737, unless you have notified the Fund of an address change within the previous 30 days. The dollar limit for telephone sales is $100,000 in a 30-day period. You do not need to set up this feature in advance of your call. Certain restrictions apply to retirement accounts. For details, call 1-800-345-6611. By mail................................. You may send a signed letter of instruction or stock power form along with any share certificates to be sold to the address below. In your letter of instruction, note 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 02105-8081. By wire................................. You may sell shares and request that the proceeds be wired to your bank. You must set up this feature prior to your telephone request. Be sure to complete the appropriate section of the account application for this feature. By systematic withdrawal plan........... You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature. By electronic funds transfer............ You may sell shares and request that the proceeds be electronically transferred to your bank. Proceeds may take up to two business days to be received by your bank. You must set up this feature prior to your request. Be sure to complete the appropriate section of the account application for this feature.
Fund Policy on Trading of Fund Shares The 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 G-11 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. Share Certificates Share certificates are not available for Class B, D, G or Z shares. Certificates will be issued for Class A or Class T 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. G-12 APPENDIX H COMPARISON OF DIFFERENCES BETWEEN A MASSACHUSETTS BUSINESS TRUST AND AN OREGON CORPORATION As series of Massachusetts business trusts, the Galaxy Growth Fund II (a series of The Galaxy Fund), the Capital Opportunities Fund and the Midcap Growth Fund (each a series of the Liberty-Stein Roe Funds Investment Trust and together with The Galaxy Fund, the "Trusts") are subject to the provisions of their respective Trusts' Declarations of Trust and the Bylaws of the Investment Trust and the Code of Regulations of The Galaxy Fund (the "Trusts' Bylaws"). The provisions of the Declarations of Trust and the Trusts' Bylaws differ in some respects from the Columbia Special Fund's Articles of Incorporation, its Bylaws and Chapter 60 of the Oregon Revised Statutes ("ORS"), referred to as the Oregon Business Corporations Act ("OBCA"), which governs Oregon corporations. The following is a summary of significant differences between (i) the Columbia Special Fund's Articles of Incorporation, its Bylaws and the OBCA and (ii) the Declarations of Trust, the Trusts' Bylaws and Massachusetts business trust law. For additional information regarding all of the differences, shareholders of a Fund should refer directly to such documents, copies of which may be obtained by contacting the Columbia Special Fund at its address listed on the cover of this Prospectus/Proxy Statement or by calling toll-free at 1-800-[426-3750]. SHAREHOLDER LIABILITY. Under the OBCA, a shareholder of an Oregon corporation who has fully paid the subscription price for his shares generally has no personal liability in excess of his shares. Under Massachusetts law, shareholders of a Massachusetts business trust could, in certain circumstances, be held personally liable for the obligations of the trust. The Declarations of Trust, however, disclaim shareholder liability for acts or obligations of the Trusts or the Acquired Funds and require that notice of that disclaimer be given in each agreement, undertaking, or obligation entered into or executed by the Trusts, the Acquired Funds or the Trusts' Trustees. The Declarations of Trust provide for indemnification out of an Acquired Fund's property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder's incurring financial loss from shareholder liability is limited to circumstances in which the Acquired Fund would be unable to meet its obligations. The likelihood of such a circumstance is considered by the Acquired Funds' respective investment advisors to be remote. SHAREHOLDER VOTING RIGHTS, INTERESTS AND MEETINGS. The shareholders of the Acquired Funds generally have different and somewhat more limited rights to vote and to call shareholder meetings than shareholders of the Columbia Special Fund. The shareholders of each Acquired Fund have the right to vote for the election of trustees. The Declarations of Trust of the Investment Trust does not provide that the shareholders of the Capital Opportunities Fund or the Midcap Growth Fund have the right to call a special meeting of shareholders for that or any other purpose or to vote to remove any Trustees. The Columbia Special Fund's Articles of Incorporation and Bylaws, and the Declaration of Trust of The Galaxy Fund, each give shareholders the right to call a special meeting for the purpose of electing directors or trustees or any other purpose (upon the request of the holders of 10% of the outstanding shares of the Fund) and to remove any directors or trustees. Directors of the Columbia Special Fund may only be removed by the shareholders; a trustee of either Trust may only be removed by the trustees of that Trust. In an election of Trustees, the shareholders of all funds that are series of the same trust vote together for a single Board of Trustees for that trust. In an election of directors, the shareholders of each fund vote separately for a board of directors for that fund. Neither the Acquired Funds nor the Columbia Special Fund is required to hold annual shareholder meetings for matters such as the election of trustees or directors, although the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), may effectively require that the Acquired Funds or the Columbia Special Fund call special shareholder meetings from time to time. H-1 The shareholders of an Acquired Fund have the right to vote on a somewhat more limited category of amendments to their Declarations of Trust than the category of amendments to the Columbia Special Fund's Articles of Incorporation on which its shareholders have the right to vote. The Trustees may amend the Declarations of Trust without a shareholder vote to change the Trusts' names, supply any omission, or cure any ambiguous, defective or inconsistent provision. The Trustees may amend the Trusts' Bylaws without shareholder consent, but the shareholders may not amend the Trusts' Bylaws. The shareholders or board of directors of the Columbia Special Fund may amend the Fund's Bylaws. A termination of the Trusts or any series of the Trusts may be effected by action of the Trustees without shareholder approval. The shareholders of the Columbia Special Fund have the right to vote on a dissolution of the Fund, with a required vote of two-thirds of the outstanding shares (in addition to the vote of a "majority of the outstanding shares" as defined under the 1940 Act). The shareholders of the Acquired Funds have the right to vote on a merger, consolidation or share exchange involving the Trusts, with a required vote of a majority of the shares voted for the Capital Opportunities Fund and the Midcap Growth Fund, and a required vote of a majority of the outstanding shares for the Galaxy fund. The shareholders of the Columbia Special Fund have the right to vote on a merger, consolidation, share exchange or sale of all or substantially all assets, with a required vote of a majority of the outstanding shares. The shareholders of the Acquired Funds do not have dissenters' rights for these types of extraordinary transactions. The OBCA provides that the shareholders of the Columbia Special Fund have dissenters' rights for these types of extraordinary transactions, although such dissenters' rights may be preempted by the 1940 Act. The shareholders of an Acquired Fund may vote together with shareholders of other series of the same Trust on certain matters because of the single Trust structure, whereas the shareholders of the Columbia Special Fund vote separately from the shareholders of other Columbia funds because the funds are separate corporations. Although any such combined voting would be subject to requirements of the 1940 Act as to separate series or class voting rights, the shareholders of all Acquired Funds that are series of the same trusts would still vote together on matters such as the election of trustees or ratification of auditors. The Trusts' Declarations of Trust provide that a majority consent is required for a shareholder action taken without a meeting. The Columbia Special Fund's Bylaws provide that unanimous consent is required for a shareholder action taken without a meeting. The Declaration of Trust of the Investment Trust provides that a quorum for a shareholder meeting is 30% of the shares entitled to vote at the meeting. The Declaration of Trust of the Galaxy Fund and the Columbia Special Fund's Bylaws provide that a quorum for a shareholder meeting is a majority of the shares entitled to vote at the meeting. Shareholders of the Columbia Special Fund and Galaxy Growth Fund II must receive at least ten days' notice of a shareholder meeting, whereas shareholders of the Capital Opportunities Fund and the Midcap Growth Fund must receive only seven days' notice. A shareholder of an Acquired Fund may put a voting proxy in place for a duration of up to six months, compared with eleven months for shareholders of the Columbia Special Fund. The Columbia Special Fund must make available a list of all shareholders two days after notice of a shareholder meeting. No such requirement is applicable to the Acquired Funds. - --------------- (1) Pursuant to the 1940 Act, a vote of the "majority of the outstanding shares" of the Fund is equal to a vote of: (A) 67% of the Fund's voting securities present at a meeting, if the holders of more than 50% of the Fund's outstanding voting securities are present or represented by proxy; or (B) more than 50% of the Fund's outstanding voting securities. H-2 The Investment Trust's Declaration of Trust specifically disclaims any shareholder right to accounting, partition, or division of assets of the relevant Funds. The Declaration of Trust of The Galaxy Fund specifically disclaims any shareholder right to partition of assets of the relevant Fund. No such disclaimer is present in the Columbia Special Fund's Articles of Incorporation, although Oregon law limits shareholder rights in dissolution of the Columbia Special Fund. DIRECTOR/TRUSTEE VOTING RIGHTS, POWERS AND MEETINGS. The required quorum for a meeting of the directors of the Columbia Special Fund and the trustees of the Galaxy Fund is a majority of the directors, whereas the quorum for a meeting of trustees of the Investment Trust is one-third of the trustees. The net asset value ("NAV") of a fund is determined on a daily basis using a method chosen by the directors or trustees. The Declarations of Trust offer the trustees of the Acquired Funds guidance in valuing many types of assets held by the Trusts in establishing NAV calculation methods. Directors of the Columbia Special Fund have no specific guidance under the Articles of Incorporation or Bylaws. Director vacancies for the Columbia Special Fund are filled by action of either the shareholders, board of directors, or the remaining directors. A trustee vacancy for an Acquired Fund may be filled by action of the current trustees as long as two-thirds of the board of trustees is shareholder-elected. Boards of directors or trustees form committees of subgroups of their number to perform certain tasks. Such a committee formed by the directors of the Columbia Special Fund may not take certain actions, including the following: authorizing distributions; approving or proposing to the shareholders any actions which require shareholder approval; filling vacancies on the board or any committees; amending the Fund's articles of incorporation, to the extent directors may do so without shareholder consent; adopting, amending or repealing bylaws; approving a plan of merger not requiring shareholder approval; authorizing or approving reacquisition of shares unless within limits prescribed by the board; generally authorizing or approving the issuance or sale of shares; or determining the designation, rights, preferences, or limitations of any class or series of shares. Trustee committees for the Acquired Funds are not so limited. Directors of the Columbia Special Fund and trustees of the Trusts may cause a fund to make loans to, or guarantees for, directors or trustees, respectively. In order for directors of the Columbia Special Fund to take such action, (i) it must be approved by a majority of outstanding shares, or (ii) the board must determine that the loan or guarantee benefits the corporation and must approve the specific loan or guarantee or a general plan authorizing such items. The trustees of the Trusts are not subject to any such explicit restrictions. DIVIDENDS. The OBCA imposes certain limitations on distributions in circumstances where the corporation would be unable to pay its debts as they become due in the ordinary course of business, or its total assets would be less than its total liabilities and certain other obligations. No similar limitations are contained in the Trusts' Declarations of Trust. DIRECTOR AND TRUSTEE LIABILITY AND INDEMNIFICATION. Under the OBCA and the Columbia Special Fund's Articles of Incorporation, the directors of the Columbia Special Fund are not personally liable for monetary damages for their conduct as directors, but are personally liable for the following: acts in breach of the director's duty of loyalty to the corporation or its shareholders; acts or omissions not in good faith with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the best interests of the corporation; acts which involve intentional misconduct or knowing violation of the law; an unlawful distribution to shareholders; and transactions from which the director derived an improper personal benefit. Under the Trusts' Declarations of Trust, the Trustees are liable only for willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct as Trustee. Oregon law provides for mandatory indemnification of a corporation's directors against reasonable expenses incurred in connection with a proceeding or claim with respect to which the director is successful in defending. This mandatory indemnification also extends to officers unless a fund's Articles of Incorporation provide otherwise. In addition, the OBCA permits the Columbia Special Fund to include a provision in its Articles of Incorporation providing that it will indemnify an individual made party to a proceeding because the individual is or was an officer or director against liability incurred in the proceeding. [Subject to approval by H-3 shareholders of the Columbia Special Fund, the Fund will provide for indemnification of officers and directors for any liability (including obligations to pay a judgment, settlement, penalty, fine and expenses of counsel) incurred in a proceeding provided that such persons - acted in good faith, - reasonably believed that their conduct was in the best interests of the corporation, or at least not opposed to its vest interests, and - in a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. No indemnification may be granted if such person is adjudged liable (i) to the Fund in connection with a proceeding by or in right of the Fund or (ii) on the basis that personal benefit was improperly received. In addition, the Fund will reimburse the expenses of an officer or director (or the Fund will pay the expenses) in advance of the final disposition of any proceeding if the person receiving the advance furnishes to the Fund (x) written affirmation of his or her good faith belief that he or she has met the prescribed standard of conduct, and (y) a written undertaking to repay the advance if it is determined that he or she did not meet the standard of conduct.] Pursuant to the Declaration of Trust of the Investment Trust, the Trust will indemnify each of its Trustees and officers (including persons serving at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest) against all liabilities and expenses, including reasonably-incurred counsel fees, while in office or thereafter, by reason of the covered person's service as a Trustee or officer. Expenses (excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties) may be paid from time to time by the Trust in advance of the final disposition of any such proceeding if the Trust receive an undertaking by the covered person to repay the amounts if it is later determined that indemnification of such expenses was not authorized by the Declaration of Trust. Such prepayment requires either that (a) the covered person provide security for the undertaking, (b) the Trust be insured against losses arising from the covered person's failure to fulfill the undertaking or (c) a majority of the Trustees who are disinterested persons and who are not "interested persons" within the meaning of the 1940 Act (if a majority of such Trustees then in office act on the matter), or independent legal counsel in a written opinion, determines that there is reason to believe the covered person ultimately will be entitled to indemnification. Pursuant to the Declaration of Trust of The Galaxy Fund, Galaxy will indemnify each of its trustees, representatives and employees against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise, as fines and penalties, and as counsel fees, reasonable incurred by such person while in office or thereafter, by reason of the indemnified person's service as a trustee, representative or employee except with respect to any matter as to which such person shall have been adjudicated to have acted in bad faith, willful misfeasance, gross negligence or reckless disregard of his duties. Expenses may be paid from time to time by Galaxy in advance of the final disposition of any such proceeding if Galaxy receives a written undertaking by the indemnified person to reimburse Galaxy in the event it is subsequently determined that the indemnified person is not entitled to such indemnification. H-4 COLUMBIA SPECIAL FUND, INC. FORM N-14 PART B STATEMENT OF ADDITIONAL INFORMATION [August __], 2002 This Statement of Additional Information (the "SAI") relates to the proposed Acquisition (the "Acquisition") of the Galaxy Growth Fund II, a series of The Galaxy Fund, the Stein Roe Capital Opportunities Fund and the Liberty Midcap Growth Fund, each a series of Liberty-Stein Roe Funds Investment Trust (collectively, the "Acquired Funds"), by the Columbia Special Fund, Inc. (the "Acquiring Fund"). This SAI contains information which may be of interest to shareholders but which is not included in the Prospectus/Proxy Statement dated [August __], 2002 (the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to the Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition would involve the transfer of all the assets of the Acquired Funds in exchange for shares of the Acquiring Fund and the assumption of all the liabilities of the Acquired Funds. Each Acquired Fund would distribute the Acquiring Fund shares it receives to its shareholders in complete liquidation of the Acquired Funds. This SAI is not a prospectus and should be read in conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with the Securities and Exchange Commission and is available upon request and without charge by writing to: the Stein Roe Capital Opportunities Fund or the Liberty Midcap Growth Fund at One Financial Center, Boston, Massachusetts 02111-2621, or by calling 1-800-338-2550; the Galaxy Growth Fund II at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, or by calling 1-877-289-4252; and the Columbia Special Fund, Inc., 1301 S.W. Fifth Avenue, Portland, Oregon 97201, or by calling 1-800-547-1707. Table of Contents I. Additional Information about the Acquiring Fund and the Acquired Fund... 2 II. Financial Statements.................................................... 2
I. Additional Information about the Acquiring Fund and the Acquired Funds. Attached hereto as Appendix A is the Statement of Additional Information for the Acquiring Fund dated February 25, 2002. II. Financial Statements. This SAI is accompanied by the Annual Report for the twelve months ended December 31, 2001 of the Acquiring Fund, which report contains historical financial information regarding such Fund. Such report has been filed with the Securities and Exchange Commission and is incorporated herein by reference. In accordance with Instruction 2 to Item 14 of Form N-14, no pro forma financial statements are required for the Acquisition of the Liberty Midcap Growth Fund because the net asset value of the Liberty Midcap Growth Fund does not exceed 10% of the net asset value of the Acquiring Fund as of [June 30, 2002]. Pro forma financial statements for the Acquisitions of the Galaxy Growth Fund II and the Stein Roe Capital Opportunities Fund are provided on the following pages. GALAXY GROWTH FUND II STEIN ROE CAPITAL OPPORTUNITIES FUND AND COLUMBIA SPECIAL FUND PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited pro forma combining investment portfolio and statement of assets and liabilities assumes that three possible exchanges described in the next paragraph occurred as of January 1, 2001 and the unaudited pro forma combining statement of operations for the twelve months ended December 31, 2001 presents the results of operations of the Columbia Special Fund as if the combination with (1) both Acquired Funds, (2) the Galaxy Growth Fund II but not the Stein Roe Capital Opportunities Fund, or (3) the Stein Roe Capital Opportunities Fund but not the Galaxy Growth Fund II, had been consummated at January 1, 2001. The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had any of the combinations been consummated at January 1, 2001. These historical statements have been derived from the Galaxy Growth Fund II's, the Stein Roe Capital Opportunities Fund's and the Columbia Special Fund's books and records utilized in calculating daily net asset values at December 31, 2001, and for the twelve-month period then ended. The pro forma statements give effect to three scenarios: (1) the proposed transfer of all of the assets of the Galaxy Growth Fund II and the Stein Roe Capital Opportunities Fund to the Columbia Special Fund in exchange for the assumption by the Columbia Special Fund of all of the liabilities of the Galaxy Growth Fund II and the Stein Roe Capital Opportunities Fund, and for a number of the Columbia Special Fund's shares equal in value to the value of the net assets of the Galaxy Growth Fund II and the Stein Roe Capital Opportunities Fund transferred to the Columbia Special Fund; (2) the proposed transfer of all of the assets of the Galaxy Growth Fund II, but not the Stein Roe Capital Opportunities Fund, to the Columbia Special Fund in exchange for the assumption by the Columbia Special Fund of all of the liabilities of the Galaxy Growth Fund II, and for a number of the Columbia Special Fund's shares equal in value to the value of the net assets of the Galaxy Growth Fund II transferred to the Columbia Special Fund; and (3) the proposed transfer of all of the assets of the Stein Roe Capital Opportunities Fund, but not the Galaxy Growth Fund II, to the Columbia Special Fund in exchange for the assumption by the Columbia Special Fund of all of the liabilities of the Stein Roe Capital Opportunities Fund, and for a number of the Columbia Special Fund's shares equal in value to the value of the net assets of the Stein Roe Capital Opportunities Fund transferred to the Columbia Special Fund. Under generally accepted accounting principles, the historical cost of investment securities will be carried forward to the surviving entity and the results of operations of the Columbia Special Fund for pre-combination periods will not be restated. The pro forma statement of operations does not reflect the expenses of any of the funds in carrying out their obligations under the Agreements and Plans of Reorganization. The unaudited pro forma combining statements should be read in conjunction with the separate financial statements of the Galaxy Growth Fund II, the Stein Roe Capital Opportunities Fund and the Columbia Special Fund incorporated by reference in this statement of additional information.
Pro Forma Combining Statements of Assets and Liabilities December 31, 2001 (Unaudited) - --------------------------------------------------------------------------------------------------------------------------- Stein Roe Columbia Galaxy Capital Special Growth Opportunities Pro Forma Pro Forma Fund Fund II Fund Adjustments Combined ------------- ------------ ------------- ------------- -------------- Assets Investments, at cost $ 655,697,866 $ 84,735,850 $ 260,078,799 $1,000,512,515 ------------- ------------ ------------- -------------- Investments, at value $ 777,606,431 $108,568,840 $ 295,141,825 $1,181,317,096 Cash - 779 136,960 137,739 Receivable for: Investments sold 17,746,019 - - 17,746,019 Fund shares sold 660,389 5,094 7,143 672,626 Dividends 49,372 22,260 60,920 132,552 Interest 26,705 424 28,309 55,438 Expense reimbursement due from Advisor - 20,702 - 20,702 Deferred Trustees' compensation plan - - 1,366 1,366 Other assets - - 250 250 ------------- ------------ ------------- -------------- Total Assets 796,088,916 108,618,099 295,376,773 1,200,083,788 ------------- ------------ ------------- -------------- Liabilities Payable for: Investments purchased 2,110,311 - - 2,110,311 Fund shares repurchased 7,087,477 3,343 68,678 7,159,498 Distributions - 6,827 - 6,827 Management fee 606,218 68,189 184,252 858,659 Administration fee - 6,615 36,869 43,484 Bookkeeping fee - - 9,199 9,199 Tranfer agent fee 53,058 3,300 23,432 79,790 Deferred Trustees' fee - - 1,366 1,366 Other liabilities 160,618 48,385 15,941 238,219 {a} 463,163 ------------- ------------ ------------- -------------- Total Liablities 10,017,682 136,659 339,737 10,732,297 ------------- ------------ ------------- -------------- Net Assets $ 786,071,234 $108,481,440 $ 295,037,036 $1,189,351,491 ============= ============ ============= ============== Paid in capital $ 802,289,792 $ 88,554,026 $ 289,393,307 $1,180,237,125 Accumulated net investment loss - (733,284) (570,611) (238,219){a} (1,542,114) Accumulated net realized loss on investments and foreign currency transactions (138,127,123) (3,172,292) (28,848,686) (170,148,101) Net unrealized appreciation/ depreciation oninvestments 121,908,565 23,832,990 35,063,026 180,804,581 ------------- ------------ -------------- -------------- Net Assets $ 786,071,234 $108,481,440 $ 295,037,036 $1,189,351,491 ============= ============ ============= ============== Net assets - Class A $ - $ - $ 1,838 (1){a}{b} $ 1,837 ============= ============ ============= ============== Shares outstanding - Class A - - 86 8 {a}{b} 94 ============= ============ ============= ============== Net asset value and redemption price per share - Class A $ - $ - $ 21.37(a) $ 19.60 ============= ============ ============= ============== Maximum offering price per share - Class A (Net asset value/0.9425) $ - $ - $ 22.67(b) $ 20.80 ============= ============ ============= ============== Net assets - Retail A $ - $ 41,404,637 $ - (41,404,637) $ - ============= ============ ============= ============== Shares outstanding - Retail A - 4,081,947 - (4,081,947) - ============= ============ ============= ============== Net asset value and redemption price per share - Retail A $ - $ 10.14 $ -(a) $ - ============= ============ ============= ============== Maximum offering price per share - Retail A (Net asset value/0.9425) $ - $ 10.76 $ -(b) $ - ============= ============ ============= ============== Net assets - Class T $ - $ - $ - 41,404,637{b} $ 41,404,637 ============= ============ ============= ============== Shares outstanding - Class T - - - 2,112,481{b} 2,112,481 ============= ============ ============= ============== Net asset value and redemption price per share - Class T $ - $ - $ -(a) $ 19.60 ============= ============ ============= ============== Maximum offering price per share - Class T (Net asset value/0.9425) $ - $ - $ -(b) $ 20.80 ============= ============ ============= ============== Net assets - Retail B $ - $ 1,046,995 $ - (1,046,995) $ - ============= ============ ============= ============== Shares outstanding - Retail B - 104,193 - (104,193) - ============= ============ ============= ============== Net asset value and offering price per share - Retail B $ - $ 10.05(a) $ - $ - ============= ============= ============= ============== Net assets - Class G $ - $ - $ - 1,046,995{b} $ 1,046,995 ============= ============= ============= ============== Shares outstanding - Class G - - - 53,418{b} 53,418 ============= ============= ============= ============== Net asset value and offering price per share - Class G $ - $ -(a) $ - $ 19.60 ============= ============= ============= ============== Net assets - Class S $ 786,071,234 $ - $ 295,035,198 (1,081,106,432){a}{c} $ - ============= ============= ============= ============== Shares outstanding - Class S 40,113,760 - 13,753,409 (53,867,169 (a}{c} - ============= ============= ============= ============== Net asset value, offering and redemption price per share - Class S $ 19.60 $ - $ 21.45 $ - ============= ============= ============= ============== Net assets - Trust Shares $ - $ 66,029,808 $ - (66,029,808 {a}{c} $ - ============= ============= ============= ============== Shares outstanding - Trust Shares - 6,465,264 - (6,465,264){a}{c} - ============= ============= ============= ============== Net asset value, offering and redemption price per share - Trust Shares $ - $ 10.21 $ - $ - ============= ============= ============= ============== Net assets - Class Z $ - $ - $ - 1,147,029,1{a}{b) $1,147,029,117 ============= ============= ============= ============== Shares outstanding - Class Z - - - 58,529,979{a}{b) 58,521,894 ============= ============= ============= ============== Net asset value, offering and redemption price per share - Class Z $ - $ - $ - $ 19.60 ============= ============= ============= ==============
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. {a} Adjustments reflect one time proxy, accounting, legal and other costs of the reorganization of $0, $0 and $107,124 to be borne by Columbia Special Fund, Galaxy Growth Fund II and Stein Roe Capital Opportunities Fund, respectively. {b} New class shares of the surviving fund transferred at NAV of surviving fund. {c} Class S shares and Trust shares redesignated as class Z shares
PRO FORMA COMBINING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (UNAUDITED) - -------------------------------------------------------------------------------------------------------------------------- STEIN ROE COLUMBIA GALAXY CAPITAL SPECIAL GROWTH OPPORTUNITIES PRO FORMA PRO FORMA FUND FUND II FUND ADJUSTMENTS COMBINED ------------- ----------- ---------------- ------------- -------------- Investment Income Dividends $ 1,677,865 $ 182,382 $681,642182,382 $ 12,541,889 Interest 3,413,337 320,301 595,277 4,328,915 ------------- ----------- --------------- ------------ Total Investment Income 5,091,202 502,683 1,276,919 6,870,804 Expenses Management fee 7,790,604 861,149 2,507,946 (13,028) {a} 11,146,671 Administration fee - 75,314 503,882 (579,196) {a} - Distribution and service fees - 126,370 4 13,175 {b} 139,549 Fund accounting fee 37,599 48,481 67,758 (39,411) {c} 114,427 Transfer agent fee 1,157,971 97,243 782,837 (27,609) {d} 2,010,442 Directors'/Trustees' fee 8,492 1,532 18,881 (19,905) {e} 9,000 Custody fee 76,817 14,245 16,780 - 107,842 Other expenses 316,492 121,968 164,938 (303,884) {f} 299,514 ------------- ------------ --------------- ------------ Total Expenses 9,387,975 1,346,302 4,063,026 13,827,445 Fees and expenses waived or borne by Advisor and Administrator - (216,958) - (165,533) {a} (382,491) Fees waived by Distributor - Class A - - (1) (1) Fees paid indirectly (16,690) - - (16,690) Custody credits earned - - (6,213) (6,213) ------------- ------------ --------------- ------------- Net Expenses 9,371,285 1,129,344 4,056,812 13,422,050 ------------- ------------ --------------- ------------- Net Investment Loss (4,280,083) (626,661) (2,779,893) (6,551,246) ------------- ------------ --------------- ------------- Net Realized and Unrealized Gain (Loss) on Investments, Futures Contracts & Foreign Currency Net realized gain (loss) on investments and futures contracts (128,113,140) (5,359,970) (55,425,960) (188,899,070) Net realized gain (loss) on foreign currency contracts and foreign currencies - (2,339) 312,537 310,198 ------------- ------------ --------------- ------------- Net realized loss (128,113,140) (5,362,309) (55,113,423) (188,588,872) ------------- ------------ --------------- ------------- Net change in unrealized appreciation/ depreciation on investments, futures contracts and foreign currency (102,084,435) (13,940,801) (29,838,407) (145,863,643) ------------- ------------ --------------- ------------- Net Loss (230,197,575) (19,303,110) (84,951,830) (334,452,515) ------------- ------------ --------------- ------------- Decrease in Net Assets from Operations $(234,477,658) $(19,929,771) $ (87,731,723) $(341,003,761) ============= ============ =============== =============
{a} Based upon the contract in effect for the surviving fund. {b} Liberty structure . {c} Based on new SSB fee structure. {d} Based on new fee structure effective 7/1/01. {e} Based on new Liberty funds structure assuming all mergers occur. {f} Due to economies of scale achieved by merging funds. PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS December 31, 2001 (Unaudited)
STEIN ROE COLUMBIA GALAXY CAPITAL STEIN ROE SPECIAL GROWTH II OPPORTUNITIES COLUMBIA GALAXY CAPITAL FUND FUND FUND SPECIAL GROWTH II OPPORTUNITIES SHARES OR SHARES SHARES OR PRO FORMA FUND FUND FUND PRO FORMA PAR OR PAR PAR COMBINED VALUE VALUE VALUE COMBINED - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 96.0% - ------------------------------------------------------------------------------------------------------------------------------------ CONSTRUCTION - 1.5% BUILDING MATERIALS - 1.5% - 50,000 - 50,000 Centex Corp. $ - $ 2,854,500 $ - $ 2,854,500 323,200 - - 323,200 Martin Maritta Materials, Inc. 15,061,120 - - 15,061,120 -------------------------------------------------- 15,061,120 2,854,500 - 17,915,620 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER DISCRETIONARY - 9.9% EDUCATIONAL SERVICES - 1.3% 121,350 - - 121,350 Apollo Group, Inc., Class A 5,461,963 - - 5,461,963 54,100 - - 54,100 DeVry, Inc. 1,539,145 - - 1,539,145 - 100,000 - 100,000 DigitalThink, Inc. - 1,080,000 - 1,080,000 - - 75,000 75,000 Education Management Corp. - - 2,718,750 2,718,750 194,580 - - 194,580 SmartForce PLC, ADR 4,815,855 - - 4,815,855 -------------------------------------------------- 11,816,963 1,080,000 2,718,750 15,615,713 -------------------------------------------------- HOTELS - 0.9% - - 125,000 125,000 Four Seasons Hotels, Inc. - - 5,845,000 5,845,000 - - 100,000 100,000 Hotel Reservations Network, Inc. - - 4,600,000 4,600,000 -------------------------------------------------- - - 10,445,000 10,445,000 -------------------------------------------------- LEISURE FACILITIES - 1.9% - - 200,000 200,000 Carnival Corp. - - 5,616,000 5,616,000 124,700 - - 124,700 Harrah's Entertainment, Inc. 4,615,147 - - 4,615,147 393,690 - - 393,690 Mattel, Inc. 6,771,468 - - 6,771,468 - - 275,000 275,000 Steiner Leisure Ltd. - - 5,843,750 5,843,750 -------------------------------------------------- 11,386,615 - 11,459,750 22,846,365 -------------------------------------------------- MOTORCYCLE MANUFACTURERS - 0.7% - - 150,000 150,000 Harley-Davidson, Inc. - - 8,146,500 8,146,500 -------------------------------------------------- PERSONAL PRODUCTS - 0.5% 345,330 - - 345,330 Dial Corp. 5,922,410 - - 5,922,410 -------------------------------------------------- RESTAURANTS - 4.6% 435,190 - 200,000 635,190 Brinker International, Inc. 12,951,254 - 5,952,000 18,903,254 - - 150,000 150,000 Buca, Inc. - - 2,431,500 2,431,500 - 75,000 - 75,000 Cheesecake Factory, Inc. - 2,607,750 - 2,607,750 375,600 - - 375,600 Outback Steakhouse, Inc. 12,864,300 - - 12,864,300 - 100,000 - 100,000 P.F. Chang's China Bistro, Inc. - 4,730,000 - 4,730,000 270,900 - - 270,900 TRICON Global Restaurants, Inc. 13,328,280 - - 13,328,280 -------------------------------------------------- 39,143,834 7,337,750 8,383,500 54,865,084 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ FINANCE, INSURANCE & REAL ESTATE - 6.0% DEPOSITORY INSTITUTIONS - 0.9% - 70,000 - 70,000 Fifth Third Bancorp - 4,293,100 - 4,293,100 82,980 - - 82,980 M&T Bank Corp. 6,045,093 - - 6,045,093 -------------------------------------------------- 6,045,093 4,293,100 - 10,338,193 -------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 1.0% - - 125,000 125,000 Investors Financial Services Corp. - - 8,276,250 8,276,250 - - 100,000 100,000 Raymond James Financial, Inc. - - 3,552,000 3,552,000 -------------------------------------------------- - - 11,828,250 11,828,250 -------------------------------------------------- INSURANCE CARRIERS - 3.1% - - 125,000 125,000 ACE Ltd. - - 5,018,750 5,018,750 - - 100,000 100,000 Ambac Financial Group, Inc. - - 5,786,000 5,786,000 150,300 - 150,000 300,300 Arthur J. Gallagher & Co. 5,183,847 - 5,173,500 10,357,347 - - 225,000 225,000 Fidelity National Financial, Inc. - - 5,580,000 5,580,000 - - 150,000 150,000 MGIC Investment Corp. - - 9,258,000 9,258,000 - 35,000 - 35,000 Midland Co. - 1,533,000 - 1,533,000 -------------------------------------------------- 5,183,847 1,533,000 30,816,250 37,533,097 -------------------------------------------------- NON-DEPOSITORY CREDIT INSTITUTIONS - 0.4% - - 200,000 200,000 Metris Companies, Inc. - - 5,142,000 5,142,000 -------------------------------------------------- REAL ESTATE - 0.6% - 1,100,000 - 1,100,000 J.D. Wetherspoon PLC - 6,940,137 - 6,940,137 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ MANUFACTURING - 21.8% APPAREL - 0.1% - 15,000 - 15,000 Cintas Corp. - 720,000 - 720,000 --------------------------------------------------
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS December 31, 2001 (Unaudited)
STEIN ROE COLUMBIA GALAXY CAPITAL STEIN ROE SPECIAL GROWTH II OPPORTUNITIES COLUMBIA GALAXY CAPITAL FUND FUND FUND SPECIAL GROWTH II OPPORTUNITIES SHARES OR SHARES SHARES OR PRO FORMA FUND FUND FUND PRO FORMA PAR OR PAR PAR COMBINED VALUE VALUE VALUE COMBINED - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 96.0% - ------------------------------------------------------------------------------------------------------------------------------------ CHEMICALS & ALLIED PRODUCTS - 10.4% 161,900 - - 161,900 Abgenix, Inc. 5,446,316 - - 5,446,316 241,300 - - 241,300 ANDRIX Group 16,989,933 - - 16,989,933 98,100 12,500 - 110,600 Barr Laboratories, Inc. 7,785,216 992,000 - 8,777,216 260,900 25,000 - 285,900 Biovail Corp. 14,675,625 1,406,250 - 16,081,875 112,000 - - 112,000 Cephalon, Inc. 8,465,520 - - 8,465,520 90,700 - - 90,700 Elan Corp. PLC, ADR 4,086,942 - 4,086,942 86,400 35,000 75,000 196,400 Gilead Sciences, Inc. 5,678,208 2,300,200 4,929,000 12,907,408 - - 75,000 75,000 IDEC Pharmaceuticals Corp. - - 5,169,750 5,169,750 - 30,000 75,000 105,000 King Pharaceuticals, Inc. - 1,263,900 3,159,750 4,423,650 354,400 - - 354,400 MedImmune, Inc. 16,426,440 - - 16,426,440 159,800 83,800 - 243,600 Millennium Pharmaceuticals, Inc. 3,916,698 2,053,937 - 5,970,635 312,500 - - 312,500 Sepracor, Inc. 17,831,250 - - 17,831,250 - 36,100 - 36,100 Surmodics, Inc. - 1,316,206 - 1,316,206 -------------------------------------------------- 101,302,148 9,332,493 13,258,500 123,893,141 -------------------------------------------------- ELECTRONIC COMPONENTS - 3.4% - - 125,000 125,000 CIENA Corp. - - 1,788,750 1,788,750 - - 150,000 150,000 Jabil Circuit, Inc. - - 3,408,000 3,408,000 - - 85,000 85,000 L-3 Communications Holdings, Inc. - - 7,650,000 7,650,000 - - 125,000 125,000 Microchip Technology, Inc. - - 4,842,500 4,842,500 390,980 - - 390,980 Solectron Corp. 4,410,254 - - 4,410,254 187,200 - - 187,200 Synopsys, Inc. 11,057,904 - - 11,057,904 - - 125,000 125,000 TriQuint Semiconductor, Inc. - - 1,532,500 1,532,500 634,490 - - 634,490 United Microelectronics Corp., ADR 6,091,104 - - 6,091,104 -------------------------------------------------- 21,559,262 - 19,221,750 40,781,012 -------------------------------------------------- ELECTRONICS - 0.2% 111,000 - - 111,000 Sanmina-SCI Corp. 2,208,900 - - 2,208,900 -------------------------------------------------- - - - - FOOD & KINDRED PRODUCTS - 0.4% - 20,000 - 20,000 Dean Foods, Inc. - 1,364,000 - 1,364,000 - - 150,000 150,000 Pepsi Bottling Group, Inc. - - 3,525,000 3,525,000 -------------------------------------------------- - 1,364,000 3,525,000 4,889,000 -------------------------------------------------- INDUSTRIAL MACHINERY - 0.9% - 43,000 - 43,000 Danaher Corp. - 2,593,330 - 2,593,330 - 100,000 100,000 Mettler-Toledo International, Inc. - - 5,185,000 5,185,000 - 127,000 - 127,000 Shaw Group, Inc. - 2,984,500 - 2,984,500 -------------------------------------------------- - 5,577,830 5,185,000 10,762,830 -------------------------------------------------- MACHINERY & COMPUTER EQUIPMENT - 0.2% 63,400 - - 63,400 Novellus Systems, Inc. 2,501,130 - - 2,501,130 -------------------------------------------------- MEASURING & ANALYZING INSTRUMENTS - 1.8% 40,200 - - 40,200 Millipore Corp. 2,440,140 - - 2,440,140 260,900 - - 260,900 Tektronix, Inc. 6,726,002 - - 6,726,002 317,100 - - 317,100 Waters Corp. 12,287,625 - - 12,287,625 -------------------------------------------------- 21,453,767 - - 21,453,767 -------------------------------------------------- MEDICAL PRODUCTS - 3.6% - 27,000 - 27,000 CryoLife, Inc. - 810,000 - 810,000 - 52,000 - 52,000 Endocare, Inc. - 932,360 - 932,360 124,668 - 100,000 224,668 Enzon, Inc. 7,016,315 - 5,628,000 12,644,315 209,030 - - 209,030 Genentech, Inc. 11,339,877 - - 11,339,877 117,400 - - 117,400 Genzyme Corp. 7,027,564 - - 7,027,564 - 106,500 - 106,500 Lumenis Ltd. - 2,098,050 - 2,098,050 - 90,000 - 90,000 Nexia Biotechnologies, Inc. - 256,537 - 256,537 - 44,000 - 44,000 Protein Design Labs, Inc. - 1,443,200 - 1,443,200 - 5,000 - 5,000 Stryker Corp. - 291,850 - 291,850 - 104,700 - 104,700 Thoratec Corp. - 1,779,900 - 1,779,900 123,700 30,000 - 153,700 Zimmer Holdings, Inc. 3,777,798 916,200 - 4,693,998 -------------------------------------------------- 29,161,554 8,528,097 5,628,000 43,317,651 -------------------------------------------------- TRANSPORTATION EQUIPMENT - 0.8% 339,900 - - 339,900 Gentex Corp. 9,085,527 - - 9,085,527 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ MEDIA - 7.3% BROADCASTING & CABLE - 5.8% 308,400 - - 308,400 Adelphia Communications Corp., 9,615,912 - - 9,615,912 Class A - 75,000 - 75,000 Alliance Atlantis Communications, - 849,000 - 849,000 Inc., Class B 166,300 - 200,000 366,300 Cox Radio, Inc., Class A 4,237,324 - 5,096,000 9,333,324 551,400 - - 551,400 Gemstar-TV Guide International, Inc. 15,273,780 - - 15,273,780
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS December 31, 2001 (Unaudited)
STEIN ROE COLUMBIA GALAXY CAPITAL STEIN ROE SPECIAL GROWTH II OPPORTUNITIES COLUMBIA GALAXY CAPITAL FUND FUND FUND SPECIAL GROWTH II OPPORTUNITIES SHARES OR SHARES SHARES OR PRO FORMA FUND FUND FUND PRO FORMA PAR OR PAR PAR COMBINED VALUE VALUE VALUE COMBINED - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 96.0% - ------------------------------------------------------------------------------------------------------------------------------------ 323,200 - 200,000 523,200 Hispanic Broadcasting Corp. 8,241,600 - 5,100,000 13,341,600 278,900 - 175,000 453,900 Univision Communications, Inc., 11,284,294 - 7,080,500 18,364,794 Class A - - 150,000 150,000 XM Satellite Radio Holdings, Inc., - - 2,754,000 2,754,000 Class A -------------------------------------------------- 48,652,910 849,000 20,030,500 69,532,410 -------------------------------------------------- PUBLISHING & PRINTING - 1.5% - - 50,000 50,000 Lexmark International, Inc. - - 2,950,000 2,950,000 226,700 - - 226,700 New York Times Co., Class A 9,804,775 - - 9,804,775 - - 125,000 125,000 Tribune Co. - - 4,678,750 4,678,750 -------------------------------------------------- 9,804,775 - 7,628,750 17,433,525 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ MINING & ENERGY - 2.8% OIL & GAS EXPLORATION - 2.2% - - 110,000 110,000 Apache Corp. - - 5,486,800 5,486,800 - - 150,000 150,000 Devon Energy Corp. - - 5,797,500 5,797,500 87,100 - - 87,100 Nabors Industries, Inc. 2,990,143 - - 2,990,143 - 45,000 - 45,000 Noble Drilling Corp. - 1,531,800 - 1,531,800 - 150,000 - 150,000 Ocean Energy, Inc. - 2,880,000 - 2,880,000 - 150,000 - 150,000 PetroQuest Energy, Inc. - 798,000 - 798,000 - 217,500 - 217,500 Remington Oil & Gas Corp. - 3,762,750 - 3,762,750 69,250 - - 69,250 Transocean Sedco Forex, Inc. 2,342,035 - - 2,342,035 - 200,000 - 200,000 Ultra Petroleum Corp. - 1,218,000 - 1,218,000 -------------------------------------------------- 5,332,178 10,190,550 11,284,300 26,807,028 -------------------------------------------------- OIL & GAS FIELD SERVICES - 0.6% - - 150,000 150,000 BJ Services Co. - - 4,867,500 4,867,500 86,400 - - 86,400 Hanover Compressor Co. 2,182,464 - - 2,182,464 -------------------------------------------------- 2,182,464 - 4,867,500 7,049,964 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL - 7.8% APPAREL & ACCESSORY STORES - 2.2% 216,300 - - 216,300 Abercrombie & Fitch Co., Class A 5,738,439 - - 5,738,439 357,700 - - 357,700 Intimate Brands, Inc. 5,315,422 - - 5,315,422 570,360 - - 570,360 Limited, Inc. 8,395,699 - - 8,395,699 175,000 - - 175,000 Talbots, Inc. 6,343,750 - - 6,343,750 -------------------------------------------------- 25,793,310 - - 25,793,310 -------------------------------------------------- GENERAL MERCHANDISE STORES - 3.3% 192,000 - - 192,000 Costco Wholesale Corp. 8,520,960 - - 8,520,960 361,060 225,000 - 586,060 Dollar Tree Stores, Inc. 11,160,365 6,954,750 - 18,115,115 - - 175,000 175,000 Kohl's Corp. - - 12,327,000 12,327,000 -------------------------------------------------- 19,681,325 6,954,750 12,327,000 38,963,075 -------------------------------------------------- SPECIALITY STORES - 2.3% - 60,000 275,000 335,000 Bed Bath & Beyond, Inc. - 2,034,000 9,322,500 11,356,500 - - 100,000 100,000 Coach, Inc. - - 3,898,000 3,898,000 - - 200,000 200,000 Tiffany & Co. - - 6,294,000 6,294,000 295,420 - - 295,420 Toys "R" Us, Inc. 6,127,011 - - 6,127,011 -------------------------------------------------- 6,127,011 2,034,000 19,514,500 27,675,511 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ SERVICES - 28.9% BUSINESS SERVICES - 5.2% 167,930 - - 167,930 ChoicePoint, Inc. 8,512,372 - - 8,512,372 121,590 - - 121,590 DST Systems, Inc. 6,061,262 - - 6,061,262 - - 200,000 200,000 Fiserv, Inc. - - 8,464,000 8,464,000 161,100 - - 161,100 Jack Henry & Associates, Inc. 3,518,424 - - 3,518,424 195,600 - - 195,600 Moody's Corp. 7,796,616 - - 7,796,616 197,100 - - 197,100 Robert Haft International, Inc. 5,262,570 - - 5,262,570 347,150 - - 347,150 SunGard Data Systems, Inc. 10,043,050 - - 10,043,050 91,530 - - 91,530 TMP Worldwide, Inc. 3,926,637 - - 3,926,637 226,500 - - 226,500 Valassis Communications, Inc. 8,067,930 - - 8,067,930 -------------------------------------------------- 53,188,861 - 8,464,000 61,652,861 -------------------------------------------------- COMPUTER RELATED SERVICES - 3.1% - 46,200 - 46,200 Brocade Communications Systems, Inc. - 1,530,144 - 1,530,144 254,900 - - 254,900 Cadence Design Systems, Inc. 5,587,408 - - 5,587,408 97,700 91,400 - 189,100 Emulex Corp. 3,860,127 3,611,214 - 7,471,341 - - 75,000 75,000 Internet Security Solutions, Inc. - - 2,393,250 2,393,250 - 129,500 - 129,500 McData Corp., Class A - 3,172,750 - 3,172,750 335,800 - - 335,800 Network Appliance, Inc. 7,343,946 - - 7,343,946 168,100 - - 168,100 Networks Associates, Inc. 4,345,385 - - 4,345,385 79,650 40,000 - 119,650 Siebel Systems, Inc. 2,228,607 1,119,200 - 3,347,807 - 35,000 - 35,000 VeriSign, Inc. - 1,331,400 - 1,331,400 -------------------------------------------------- 23,365,473 10,764,708 2,393,250 36,523,431 --------------------------------------------------
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS December 31, 2001 (Unaudited)
STEIN ROE COLUMBIA GALAXY CAPITAL STEIN ROE SPECIAL GROWTH II OPPORTUNITIES COLUMBIA GALAXY CAPITAL FUND FUND FUND SPECIAL GROWTH II OPPORTUNITIES SHARES OR SHARES SHARES OR PRO FORMA FUND FUND FUND PRO FORMA PAR OR PAR PAR COMBINED VALUE VALUE VALUE COMBINED - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 96.0% - ------------------------------------------------------------------------------------------------------------------------------------ COMPUTER SOFTWARE - 5.4% - - 100,000 100,000 Aspen Technology, Inc. - - 1,680,000 1,680,000 113,390 - - 113,390 Check Point Software Technologies 4,523,127 - - 4,523,127 Ltd. 62,600 - 100,000 162,600 Electronic Arts, Inc. 3,752,870 - 5,995,000 9,747,870 - 34,500 - 34,500 Epiq Systems, Inc. - 667,575 - 667,575 384,200 - - 384,200 Intuit, Inc. 16,428,392 - - 16,428,392 - - 100,000 100,000 Mercury Interactive Corp. - - 3,398,000 3,398,000 - 30,000 - 30,000 Netiq Corp. - 1,057,800 - 1,057,800 39,000 - - 39,000 PeopleSoft, Inc. 1,567,800 - - 1,567,800 238,680 - - 238,680 Peregrine Systems, Inc. 3,539,624 - - 3,539,624 - 45,000 - 45,000 Precise Software Solutions Ltd. - 929,700 - 929,700 94,800 - 125,000 219,800 Rational Software Corp. 1,848,600 - 2,437,500 4,286,100 178,400 20,000 - 198,400 VERITAS Software Corp. 7,995,888 896,600 - 8,892,488 452,700 - - 452,700 Wind River Systems, Inc. 8,107,857 - - 8,107,857 -------------------------------------------------- 47,764,158 3,551,675 13,510,500 64,826,333 -------------------------------------------------- DIVERSIFIED SERVICES - 1.0% 583,800 - - 583,800 Cendant Corp. 11,448,318 - - 11,448,318 -------------------------------------------------- HEALTH SERVICES - 13.9% 381,500 - - 381,500 Biomet, Inc. 11,788,350 - - 11,788,350 668,700 - - 668,700 Boston Scientific Corp. 16,129,044 - - 16,129,044 1,055,000 - - 1,055,000 Caremark Rx, Inc. 17,207,050 - - 17,207,050 236,500 - - 236,500 Community Health Systems, Inc. 6,030,750 - - 6,030,750 168,800 - 100,000 268,800 Express Scripts, Inc., Class A 7,893,088 - 4,676,000 12,569,088 156,500 - - 156,500 HCA, Inc. 6,031,510 - - 6,031,510 478,700 - - 478,700 Health Management Associates, Inc., 8,808,080 - - 8,808,080 Class A 1,079,000 - - 1,079,000 HEALTHSOUTH Corp. 15,990,780 - - 15,990,780 180,820 - 100,000 280,820 Laboratory Corp. of America 14,619,297 - 8,085,000 22,704,297 Holdings 193,300 - - 193,300 McKesson Corp. 7,229,420 - - 7,229,420 250,300 - - 250,300 Tenet Healthcare Corp. 14,697,616 - - 14,697,616 83,700 - - 83,700 UnitedHealth Group, Inc. 5,923,449 - - 5,923,449 168,400 - - 168,400 WellPoint Health Networks, Inc. 19,677,540 - - 19,677,540 -------------------------------------------------- 152,025,974 - 12,761,000 164,786,974 -------------------------------------------------- PERSONAL SERVICES - 0.3% 97,700 - - 97,700 Weight Watchers International, Inc. 3,304,214 - - 3,304,214 -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 7.9% ELECTRIC SERVICES - 0.3% 255,800 - - 255,800 AES Corp. 4,182,330 - - 4,182,330 -------------------------------------------------- RAILROADS - 0.5% 171,300 - - 171,300 CSX Corp. 6,004,065 - - 6,004,065 -------------------------------------------------- SANITARY SERVICES - 0.4% 218,470 - - 218,470 Republic Services, Inc. 4,362,846 - - 4,362,846 -------------------------------------------------- SEMICONDUCTORS - 4.8% 339,200 - 225,000 564,200 Altera Corp. 7,197,824 - 4,774,500 11,972,324 335,500 - - 335,500 ASML Holding NV 5,720,275 - - 5,720,275 199,960 - - 199,960 Chartered Semiconductor 5,286,742 - - 5,286,742 Manufacturing Ltd. ADR 244,040 - 225,000 469,040 Flextronics International Ltd. 5,854,520 - 5,397,750 11,252,270 - 30,000 - 30,000 Intersil Corp., Class A - 967,500 - 967,500 461,500 - - 461,500 LSI Logic Corp. 7,282,470 - - 7,282,470 - 90,000 - 90,000 Microtune, Inc. - 2,111,400 - 2,111,400 127,200 - - 127,200 National Semiconductor Corp. 3,916,488 - - 3,916,488 - 85,000 100,000 185,000 Qlogic Corp. - 3,783,350 4,451,000 8,234,350 -------------------------------------------------- 35,258,319 6,862,250 14,623,250 56,743,819 -------------------------------------------------- TELECOMMUNCIATIONS - 1.2% - 50,000 - 50,000 Leap Wirless International, Inc. - 1,048,500 - 1,048,500 328,400 - - 328,400 Polycom, Inc. 11,188,588 - - 11,188,588 - 50,000 - 50,000 SeaChange International, Inc. - 1,706,000 - 1,706,000 -------------------------------------------------- 11,188,588 2,754,500 - 13,943,088 -------------------------------------------------- TRANPORT SERVICES - 0.7% - - 150,000 150,000 Expeditors International - - 8,542,500 8,542,500 Washington, Inc. -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ WHOLESALE TRADE - 2.1% DURABLE GOODS - 1.6% - 50,000 125,000 175,000 Fastenal Co. - 3,321,500 8,303,750 11,625,250
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS December 31, 2001 (Unaudited)
STEIN ROE COLUMBIA GALAXY CAPITAL STEIN ROE SPECIAL GROWTH II OPPORTUNITIES COLUMBIA GALAXY CAPITAL FUND FUND FUND SPECIAL GROWTH II OPPORTUNITIES SHARES OR SHARES SHARES OR PRO FORMA FUND FUND FUND PRO FORMA PAR OR PAR PAR COMBINED VALUE VALUE VALUE COMBINED - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 96.0% - ------------------------------------------------------------------------------------------------------------------------------------ 119,960 - - 119,960 Grainger, W.W., Inc. 5,758,080 - - 5,758,080 - - 100,000 100,000 Ingram Micro, Inc., Class A - - 1,732,000 1,732,000 -------------------------------------------------- 5,758,080 3,321,500 10,035,750 19,115,330 -------------------------------------------------- NON-DURABLE GOODS - 0.5% - - 100,000 100,000 AmerisourceBergen Corp. - - 6,355,000 6,355,000 -------------------------------------------------- Total Common Stocks 757,257,369 96,843,840 288,096,050 1,142,197,259 -------------------------------------------------- PREFERRED STOCK - 0.2% - ------------------------------------------------------------------------------------------------------------------------------------ SERVICES - 0.2% COMPUTER RELATED SERVICES - 0.2% - 394,218 - 394,218 Network Specialists, Series A - 3,000,000 - 3,000,000 -------------------------------------------------- WARRANT - 1.3% - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 1.3% SEMICONDUCTORS - 1.3% Merrill-CW02 Taiwan 6,000,000 - - 6,000,000 Semiconductor (08/23/02) 215,024,000 - - 15,024,000 -------------------------------------------------- BONDS & NOTES - 0.2% - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT OBLIGATIONS - 0.2% U.S. Treasury Notes: $ - $ - $ 400,000 $ 400,000 6.500% 02/28/02 - - 399,125 399,125 - - 2,000,000 2,000,000 7.500% 05/15/02 - - 2,041,880 2,041,880 -------------------------------------------------- Total Bonds & Notes - - 2,441,005 2,441,005 -------------------------------------------------- SHORT-TERM OBLIGATIONS - 1.6% - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL PAPER - 0.4% Amstel Funding, - - 4,605,000 4,605,000 1.800% 01/02/02 - - 4,604,770 4,604,770 -------------------------------------------------- REPURCHASE AGREEMENTS - 1.2% First Boston, dated 12/31/01, - 8,725,000 - 8,725,000 due 01/02/02 at 1.750%, - 8,725,000 - 8,725,000 J.P. Morgan Securities, Inc., dated 5,325,062 - - 5,325,062 12/31/01, due 01/02/02 at 1.780% 5,325,062 - - 5,325,062 -------------------------------------------------- 5,325,062 8,725,000 - 14,050,062 -------------------------------------------------- Total Short-Term Obligations 5,325,062 8,725,000 4,604,770 18,654,832 -------------------------------------------------- TOTAL INVESTMENTS - 99.3% 777,606,431 108,568,840 295,141,825 5,003,895 -------------------------------------------------- OTHER ASSETS & LIABILITIES, NET - 0.7% 8,464,803 (87,400) (104,789) 8,272,614 -------------------------------------------------- NET ASSETS - 100.0% $786,071,23 $108,481,44 $295,037,03 $1,189,589,710 --------------------------------------------------
Percentages are based on Net Assets of the Pro Forma Combined. ACRONYM NAME ------- ---- ADR American Depositary Receipt APPENDIX A - -------------------------------------------------------------------------------- COLUMBIA COMMON STOCK FUND, INC. COLUMBIA GROWTH FUND, INC. COLUMBIA INTERNATIONAL STOCK FUND, INC. COLUMBIA SPECIAL FUND, INC. COLUMBIA SMALL CAP FUND, INC. COLUMBIA REAL ESTATE EQUITY FUND, INC. COLUMBIA TECHNOLOGY FUND, INC. COLUMBIA STRATEGIC VALUE FUND, INC. COLUMBIA BALANCED FUND, INC. COLUMBIA SHORT TERM BOND FUND, INC. COLUMBIA FIXED INCOME SECURITIES FUND, INC. COLUMBIA NATIONAL MUNICIPAL BOND FUND, INC. COLUMBIA OREGON MUNICIPAL BOND FUND, INC. COLUMBIA HIGH YIELD FUND, INC. COLUMBIA DAILY INCOME COMPANY - -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION Columbia Funds 1300 S.W. Sixth Avenue P.O. Box 1350 Portland, Oregon 97207 (503) 222-3600 This Statement of Additional Information contains information relating to 15 mutual funds: Columbia Common Stock Fund, Inc. (the "Common Stock Fund" or "CCSF"), Columbia Growth Fund, Inc. (the "Growth Fund" or "CGF"), Columbia International Stock Fund, Inc. (the "International Stock Fund" or "CISF"), Columbia Special Fund, Inc. (the "Special Fund" or "CSF"), Columbia Small Cap Fund, Inc. (the "Small Cap Fund" or "CSCF"), Columbia Real Estate Equity Fund, Inc. (the "Real Estate Fund" or "CREF"), Columbia Technology Fund, Inc. (the "Technology Fund" or "CTF"), Columbia Strategic Value Fund, Inc. (the "Strategic Value Fund" or "CSVF"), Columbia Balanced Fund, Inc. (the "Balanced Fund" or "CBF"), Columbia Short Term Bond Fund, Inc. (the "Short Term Bond Fund" or "CSTB"), Columbia Fixed Income Securities Fund, Inc. (the "Fixed Income Securities Fund" or "CFIS"), Columbia National Municipal Bond Fund, Inc. (the "National Municipal Bond Fund" or "CNMF"), Columbia Oregon Municipal Bond Fund, Inc. (the "Oregon Municipal Bond Fund" or "CMBF"), Columbia High Yield Fund, Inc. (the "High Yield Fund" or "CHYF"), and Columbia Daily Income Company (the "Columbia Daily Income Company" or "CDIC") (each a "Fund" and together the "Funds"). This Statement of Additional Information is not a Prospectus. It relates to a Prospectus dated February 25, 2002 (the "Prospectus") and should be read in conjunction with the Prospectus. Copies of the Prospectus are available without charge upon request to any of the Funds or by calling 1-800-547-1037. The Funds' most recent Annual Report to shareholders is a separate document supplied with this Statement of Additional Information. The financial statements, accompanying notes and report of 2 independent accountants appearing in the Annual Report are incorporated by reference into this Statement of Additional Information. 3 TABLE OF CONTENTS Description of the Funds.................................................. 3 Investment Restrictions................................................... 22 Management................................................................ 44 Investment Advisory and Other Fees Paid to Affiliates..................... 55 Portfolio Transactions.................................................... 57 Capital Stock and Other Securities........................................ 61 Purchase, Redemption and Pricing of Shares................................ 62 Custodians................................................................ 66 Accounting Services and Financial Statements.............................. 66 Taxes..................................................................... 67 Yield and Performance..................................................... 75 Financial Statements...................................................... 80
February 25, 2002 4 DESCRIPTION OF THE FUNDS Each of the Funds is an open-end, management investment company. Each Fund, other than the Oregon Municipal Bond Fund and the Columbia Technology Fund, is diversified, which means that, with respect to 75 percent of its total assets, the Fund will not invest more than 5 percent of its assets in the securities of any single issuer. The investment adviser for each of the Funds is Columbia Funds Management Company (the "Adviser"). See the section entitled "INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES" for further information about the Adviser. INVESTMENTS HELD AND INVESTMENT PRACTICES BY THE FUNDS The Prospectus describes the fundamental investment objective and the principal investment strategy applicable to each Fund. Each Fund's investment objective may not be changed without shareholder approval, other than the Special Fund. The Special Fund's Board of Directors may change its investment objective, without shareholder approval, upon 30 days written notice to all shareholders. What follows is additional information regarding securities in which a Fund may invest and investment practices in which it may engage. To determine whether a Fund purchases such securities or engages in such practices, see the chart on pages 20 and 21 of this Statement of Additional Information. SECURITIES RATING AGENCIES Rating agencies are private services that provide ratings of the credit quality of fixed income securities. The following is a description of the fixed income securities ratings used by Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). Subsequent to its purchase by a Fund, a security may cease to be rated, or its rating may be reduced below the criteria set forth for the Fund. Neither event would require the elimination of the security from the Fund's portfolio, but the Adviser will consider that event in its determination of whether the Fund should continue to hold such security in its portfolio. Ratings assigned by a particular rating agency are not absolute standards of credit quality and do not evaluate market risk. Rating agencies may fail to make timely changes in credit ratings and an issuer's current financial condition may be better or worse than a rating indicates. BOND RATINGS. MOODY'S -- The following is a description of Moody's bond ratings: Aaa - Best quality; smallest degree of investment risk. Aa - High quality by all standards. Aa and Aaa are known as high-grade bonds. A - Many favorable investment attributes; considered upper medium-grade obligations. Baa - Medium-grade obligations; neither highly protected nor poorly secured. Interest and principal appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Ba - Speculative elements; future cannot be considered well assured. Protection of interest and principal payments may be very moderate and not well safeguarded during both good and bad times over the future. B - Generally lack characteristics of a 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. 5 Caa - Poor standing, may be in default; elements of danger with respect to principal or interest. S&P -- The following is a description of S&P's bond ratings: AAA - Highest rating; extremely strong capacity to pay principal and interest. AA - Also high-quality with a very strong capacity to pay principal and interest; differ from AAA issues only by a small degree. A - Strong capacity to pay principal and interest; somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB - Adequate capacity to pay principal and interest; normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than for higher-rated bonds. Bonds rated AAA, AA, A, and BBB are considered investment grade bonds. BB - Less near-term vulnerability to default than other speculative grade debt; face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. B - Greater vulnerability to default but presently have the capacity to meet interest payments and principal repayments; adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. CCC - Current identifiable vulnerability to default and dependent upon favorable business, financial, and economic conditions to meet timely payments of interest and repayments of principal. In the event of adverse business, financial, or economic conditions, they are not likely to have the capacity to pay interest and repay principal. Bonds rated BB, B, and CCC are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and CCC a higher degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. A Fund may purchase unrated securities (which are not rated by a rating agency) if its portfolio manager determines that a security is of comparable quality to a rated security that the Fund may purchase. Unrated securities may be less liquid than comparable rated securities and involve the risk that the portfolio manager may not accurately evaluate the security's comparative credit rating. Analysis of the creditworthiness of issuers of lower rated securities may be more complex than for issuers of higher-quality fixed income securities. To the extent that a Fund invests in unrated securities, the Fund's success in achieving its investment objective is determined more heavily by the portfolio manager's creditworthiness analysis than if the Fund invested exclusively in rated securities. NON-INVESTMENT GRADE SECURITIES ("JUNK BONDS") Investments in securities rated below investment grade (i.e., rated Ba or lower by Moody's or BB or lower S&P) that are eligible for purchase by certain of the Funds and in particular, by the Columbia High Yield Fund, are described as "speculative" by both Moody's and S&P. Investment in lower rated corporate debt securities ("high yield securities" or "junk bonds") generally provides greater income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and principal and income risk. These high yield securities are regarded as 6 predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of debt securities that are high yield may be more complex than for issuers of higher quality debt securities. High yield securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of high yield securities have been found to be less sensitive to interest-rate changes than higher-rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in high yield security prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If an issuer of high yield securities defaults, in addition to risking payment of all or a portion of interest and principal, the Funds investing in such securities may incur additional expenses to seek recovery. The Adviser seeks to reduce these risks through diversification, credit analysis and attention to current developments and trends in both the economy and financial markets. The secondary market on which high yield securities are traded may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading market could adversely affect the price at which Funds could sell a high yield security, and could adversely affect the daily net asset value of the shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield securities, especially in a thinly-traded market. When secondary markets for high yield securities are less liquid than the market for higher grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is less reliable, objective data available. The Adviser seeks to minimize the risks of investing in all securities through diversification, in-depth credit analysis and attention to current developments in interest rates and market conditions. The use of credit ratings as the sole method of evaluating high yield securities can involve certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield securities. Also, credit rating agencies may fail to change credit ratings in a timely fashion to reflect events since the security was last rated. The Adviser does not rely solely on credit ratings when selecting securities for the Funds, and develops its own independent analysis of issuer credit quality. If a credit rating agency changes the rating of a portfolio security held by a Fund, the Fund may retain the portfolio security if the Adviser deems it in the best interest of shareholders. BANK OBLIGATIONS Bank obligations in which the Funds may invest include certificates of deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties, which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits. Bank obligations include foreign bank obligations including Eurodollar and Yankee obligations. Eurodollar bank obligations are dollar certificates of deposits and time deposits issued outside the U.S. capital markets by foreign branches of U.S. banks and by foreign banks. Yankee obligations are dollar-denominated obligations issued in the U.S. capital markets by foreign banks. Foreign bank obligations are subject to the same risks that pertain to domestic issues, notably credit risk and interest rate risk. Additionally, foreign bank obligations are subject to many of the same risks as investments in foreign 7 securities (see "Foreign Equity Securities" below). Obligations of foreign banks involve somewhat different investment risks than those affecting obligations of United States banks, including the possibilities that their liquidity could be impaired because of future political and economic developments, that their obligations may be less marketable than comparable obligations of United States banks, that a foreign jurisdiction might impose withholding taxes on interest income payable on those obligations, that foreign deposits may be seized or nationalized, that foreign governmental restrictions such as exchange controls may be adopted, which might adversely affect the payment of principal and interest on those obligations and that the selection of those obligations may be more difficult because there may be less publicly available information concerning foreign banks or the accounting, auditing and financial reporting standards, practices and requirements applicable to foreign banks may differ from those applicable to United States banks. Foreign banks are not generally subject to examination by any U.S. Government agency or instrumentality. COMMERCIAL PAPER A1 and Prime 1 are the highest commercial paper ratings issued by S&P and Moody's, respectively. Commercial paper rated A1 by S&P has the following characteristics: (1) liquidity ratios are adequate to meet cash requirements; (2) long-term senior debt is rated A or better; (3) the issuer has access to at least two additional channels of borrowing; (4) basic earnings and cash flow have an upward trend with an allowance made for unusual circumstances; (5) typically, the issuer's industry is well established and the issuer has a strong position within the industry; and (6) the reliability and quality of management are unquestioned. Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of 10 years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by the management of obligations that may be present or may arise as a result of public interest questions and preparation to meet such obligations. GOVERNMENT SECURITIES Government securities may be either direct obligations of the U.S. Treasury or may be the obligations of an agency or instrumentality of the United States. TREASURY OBLIGATIONS. The U.S. Treasury issues a variety of marketable securities that are direct obligations of the U.S. Government. These securities fall into three categories - bills, notes, and bonds - distinguished primarily by their maturity at time of issuance. Treasury bills have maturities of one year or less at the time of issuance, while Treasury notes currently have maturities of 1 to 10 years. Treasury bonds can be issued with any maturity of more than 10 years. OBLIGATIONS OF AGENCIES AND INSTRUMENTALITIES. Agencies and instrumentalities of the U.S. Government are created to fill specific governmental roles. Their activities are primarily financed through securities whose issuance has been authorized by Congress. Agencies and instrumentalities include Export Import Bank, Federal Housing Administration, Government National Mortgage Association, Tennessee Valley Authority, Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corp., U.S. Postal System, and Federal Finance Bank. Although obligations of "agencies" and "instrumentalities" are not direct obligations of the U.S. Treasury, payment of the interest or principal on these obligations is generally backed directly or indirectly by the U.S. Government. This 8 support can range from backing by the full faith and credit of the United States or U.S. Treasury guarantees to the backing solely of the issuing instrumentality itself. MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES Mortgage-backed securities are interests in pools of mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Mortgage-backed securities are sold to investors by various governmental, government-related and private organizations as further described below. A Fund may also invest in debt securities that are secured with collateral consisting of mortgage-backed securities (see "Collateralized Mortgage Obligations") and in other types of mortgage-related securities. Because principal may be prepaid at any time, mortgage-backed securities involve significantly greater price and yield volatility than traditional debt securities. A decline in interest rates may lead to a faster rate of repayment of the underlying mortgages and expose the Fund to a lower rate of return upon reinvestment. To the extent that mortgage-backed securities are held by a Fund, the prepayment right will tend to limit to some degree the increase in net asset value of the Fund because the value of the mortgage-backed securities held by the Fund may not appreciate as rapidly as the price of non-callable debt securities. When interest rates rise, mortgage prepayment rates tend to decline, thus lengthening the duration of mortgage-related securities and increasing their price volatility, affecting the price volatility of a Fund's shares. Interests in pools of mortgage-backed securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs incurred. Some mortgage-related securities (such as securities issued by the Government National Mortgage Association) are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment. The principal governmental guarantor of mortgage-related securities is the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks, and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do not apply to the market value or yield of mortgage-backed securities or to the value of a Fund's shares. Also, GNMA securities often are purchased at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and will be lost if prepayment occurs. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) mortgages from a list of approved seller/servicers, which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks, credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. 9 FHLMC is a corporate instrumentality of the U.S. Government and was created in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs"), which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. Government. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers, and other secondary market issuers also create pass-through pools of conventional mortgage loans. These issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers, and the mortgage poolers. Such insurance and guarantees and the creditworthiness of its issuers will be considered in determining whether a mortgage-related security meets a Fund's investment quality standards. There is no assurance that the private insurers or guarantors will meet their obligations under the insurance policies or guarantee arrangements. A Fund may buy mortgage-related securities without insurance or guarantees if, through an examination of the loan experience and practices of the originators/servicers and poolers, the Adviser determines that the securities meet the Fund's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. Collateralized Mortgage Obligations ("CMOs") CMOs are hybrids between mortgage-backed bonds and mortgage pass-through securities. Similar to a bond, interest and prepaid principal are paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities, guaranteed by GNMA, FHLMC, or FNMA, and their income streams. CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially protected against a sooner than desired return of principal by the sequential payments. The prices of certain CMOs, depending on their structure and the rate of prepayments, can be volatile. Some CMOs may also not be as liquid as other securities. In a typical CMO transaction, a corporation issues multiple series, (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all pay interest currently. Interest on the Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bond currently being paid off. When the Series A, B, and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios. A Fund will invest only in those CMOs whose characteristics and terms are consistent with the average maturity and market risk profile of the other fixed income securities held by the Fund. OTHER MORTGAGE-BACKED SECURITIES 10 The Adviser expects that governmental, government-related or private entities may create mortgage loan pools and other mortgage-related securities offering mortgage pass-through and mortgage-collateralized investment in addition to those described above. The mortgages underlying these securities may include alternative mortgage instruments; that is, mortgage instruments whose principal or interest payments may vary or whose terms to maturity may differ from customary long-term fixed rate mortgages. As new types of mortgage-related securities are developed and offered to investors, the Adviser will, consistent with a Fund's investment objective, policies and quality standards, consider making investments in such new types of mortgage-related securities. OTHER ASSET-BACKED SECURITIES The securitization techniques used to develop mortgage-backed securities are being applied to a broad range of assets. Through the use of trusts and special purpose corporations, various types of assets, including automobile loans, computer leases and credit card and other types of receivables, are being securitized in pass-through structures similar to mortgage pass-through structures described above or in a structure similar to the CMO structure. Consistent with a Fund's investment objectives and policies, the Fund may invest in these and other types of asset-backed securities that may be developed in the future. In general, the collateral supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments with interest rate fluctuations. These other asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the related assets. Credit card receivables are generally unsecured and the debtors are entitled to the protection of state and federal consumer credit laws, many of which give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of direct parties. To reduce the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor or the underlying assets. Liquidity protection refers to the making of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses results from payment of the insurance obligations on at least a portion of the assets in the pool. This protection may be provided through guarantee policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated, or failure of the credit support could adversely affect the return on an investment in such a security. FLOATING OR VARIABLE RATE SECURITIES 11 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 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. LOAN TRANSACTIONS Loan transactions involve the lending of securities to a broker-dealer or institutional investor for its use in connection with short sales, arbitrage, or other securities transactions. If made, loans of portfolio securities by a Fund will be in conformity with applicable federal and state rules and regulations. The purpose of a qualified loan transaction is to afford a Fund the opportunity to continue to earn income on the securities loaned and at the same time to earn income on the collateral held by it. It is the view of the Staff of the Securities and Exchange Commission ("SEC") that a Fund is permitted to engage in loan transactions only if the following conditions are met: (1) the Fund must receive at least 100 percent collateral in the form of cash or cash equivalents, e.g., U.S. Treasury bills or notes, or an irrevocable letter of credit; (2) the borrower must increase the collateral whenever the market value of the securities loaned (determined on a daily basis) rises above the level of the collateral; (3) the Fund must be able to terminate the loan, after notice, at any time; (4) the Fund must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends, interest, or other distributions on the securities loaned and any increase in market value; (5) the Fund may pay only reasonable custodian fees in connection with the loan; (6) voting rights on the securities loaned may pass to the borrower; however, if a material event affecting the investment occurs, the Board of Directors must be able to terminate the loan and vote proxies or enter into an alternative arrangement with the borrower to enable the Board to vote proxies. Excluding items (1) and (2), these practices may be amended from time to time as regulatory provisions permit. While there may be delays in recovery of loaned securities or even a loss of rights in collateral supplied if the borrower fails financially, loans will be made only to firms deemed by the Adviser to be of good standing and will not be made unless, in the judgment of the Adviser, the consideration to be earned from such loans would justify the risk. OPTIONS AND FINANCIAL FUTURES TRANSACTIONS Certain Funds may invest up to 5 percent of their net assets in premiums on put and call exchange-traded options. A call option gives the holder (buyer) the right to purchase a security at a specified price (the exercise price) at any time until a certain date (the expiration date). A put option gives the buyer the right to sell a security at the exercise price at any time until the expiration date. The Fund may also purchase options on securities indices. Options on securities indices are similar to options on a security except that, rather than the right to take or make delivery of a security at a specified price, an option on a securities index gives the holder the right to receive, on exercise of the option, an amount of cash if the closing level of the securities index on which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. A Fund may enter into closing transactions, exercise its options, or permit the options to expire. A Fund may also write call options, but only if such options are covered. A call option is covered if written on a security a Fund owns or if the Fund has an absolute and immediate right to acquire that 12 security without additional cash consideration upon conversion or exchange of other securities held by the Fund. If additional cash consideration is required, that amount must be held in a segregated account by the Fund's custodian bank. A call option on a securities index is covered if the Fund owns securities whose price changes, in the opinion of the Adviser, are expected to be substantially similar to those of the index. A call option may also be covered in any other manner in accordance with the rules of the exchange upon which the option is traded and applicable laws and regulations. Each Fund that is permitted to engage in option transactions may write such options on up to 25 percent of its net assets. Financial futures contracts, including interest rate futures transactions, are commodity contracts that obligate the long or short holder to take or make delivery of a specified quantity of a financial instrument, such as a security or the cash value of a securities index, during a specified future period at a specified price. The investment restrictions for the Funds permitted to engage in financial futures transactions do not limit the percentage of the Fund's assets that may be invested in financial futures transactions. None of the Funds, however, intend to enter into financial futures transactions for which the aggregate initial margin exceeds 5 percent of the net assets of the Fund after taking into account unrealized profits and unrealized losses on any such transactions it has entered into. A Fund may engage in futures transactions only on commodities exchanges or boards of trade. A Fund will not engage in transactions in index options, financial futures contracts, or related options for speculation. A Fund may engage in these transactions only as an attempt to hedge against market conditions affecting the values of securities that the Fund owns or intends to purchase. When a Fund purchases a put on a stock index or on a stock index future not held by the Fund, the put protects the Fund against a decline in the value of all securities held by it to the extent that the stock index moves in a similar pattern to the prices of the securities held. The correlation, however, between indices and price movements of the securities in which a Fund will generally invest may be imperfect. It is expected, nonetheless, that the use of put options that relate to such indices will, in certain circumstances, protect against declines in values of specific portfolio securities or the Fund's portfolio generally. Although the purchase of a put option may partially protect a Fund from a decline in the value of a particular security or its portfolio generally, the cost of a put will reduce the potential return on the security or the portfolio if either increases in value. Upon entering into a futures contract, a Fund will be required to deposit with its custodian in a segregated account cash, certain U.S. Government securities, or any other portfolio assets as permitted by the SEC's rules and regulations in an amount known as the "initial margin." This amount, which is subject to change, is in the nature of a performance bond or a good faith deposit on the contract and would be returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. The principal risks of options and futures transactions are: (a) possible imperfect correlation between movements in the prices of options, currencies, or futures contracts and movements in the prices of the securities or currencies hedged or used for cover; (b) lack of assurance that a liquid secondary market will exist for any particular options or futures contract when needed; (c) the need for additional skills and techniques beyond those required for normal portfolio management; (d) losses on futures contracts resulting from market movements not anticipated by the investment adviser; and (e) possible need to defer closing out certain options or futures contracts to continue to qualify for beneficial tax treatment afforded "regulated investment companies" under the Internal Revenue Code of 1986. FOREIGN EQUITY SECURITIES Foreign equity securities include common stock and preferred stock, including securities convertible into equity securities, issued by foreign companies, American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). In determining whether a company is foreign, the Adviser will consider various factors including where the company is headquartered, where the company's principal operations are located, where the company's revenues are derived, where the principal trading market is 13 located and the country in which the company was legally organized. The weight given to each of these factors will vary depending upon the circumstances. Foreign equity securities, which are generally denominated in foreign currencies, involve risks not typically associated with investing in domestic securities. Foreign securities may be subject to foreign taxes that would reduce their effective yield. Certain foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes is recoverable, the unrecovered portion of any foreign withholding taxes would reduce the income a Fund receives from its foreign investments. Foreign investments involve other risks, including possible political or economic instability of the country of the issuer, the difficulty of predicting international trade patterns, and the possibility of currency exchange controls. Foreign securities may also be subject to greater fluctuations in price than domestic securities. There may be less publicly available information about a foreign company than about a domestic company. Foreign companies generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those of domestic companies. There is generally less government regulation of stock exchanges, brokers, and listed companies abroad than in the United States. In addition, with respect to certain foreign countries, there is a possibility of the adoption of a policy to withhold dividends at the source, or of expropriation, nationalization, confiscatory taxation, or diplomatic developments that could affect investments in those countries. Finally, in the event of default on a foreign debt obligation, it may be more difficult for a Fund to obtain or enforce a judgement against the issuers of the obligation. The Funds will normally execute their portfolio securities transactions on the principal stock exchange on which the security is traded. The considerations noted above regarding the risk of investing in foreign securities are generally more significant for investments in emerging or developing countries, such as countries in Eastern Europe, Latin America, South America or Southeast Asia. These countries may have relatively unstable governments and securities markets in which only a small number of securities trade. Markets of developing or emerging countries may generally be more volatile than markets of developed countries. Investment in these markets may involve significantly greater risks, as well as the potential for greater gains. ADRs in registered form are dollar-denominated securities designed for use in the U.S. securities markets. ADRs are sponsored and issued by domestic banks and represent and may be converted into underlying foreign securities deposited with the domestic bank or a correspondent bank. ADRs do not eliminate the risks inherent in investing in the securities of foreign issuers. By investing in ADRs rather than directly in the foreign security, however, a Fund may avoid currency risks during the settlement period for either purchases or sales. There is a large, liquid market in the United States for most ADRs. GDRs are receipts representing an arrangement with a major foreign bank similar to that for ADRs. GDRs are not necessarily denominated in the currency of the underlying security. Additional costs may be incurred in connection with a Fund's foreign investments. Foreign brokerage commissions are generally higher than those in the United States. Expenses may also be incurred on currency conversions when a Fund moves investments from one country to another. Increased custodian costs as well as administrative difficulties may be experienced in connection with maintaining assets in foreign jurisdictions. Foreign Fixed Income Securities Foreign fixed income securities include debt securities of foreign corporate issuers, certain foreign bank obligations (see "Bank Obligations"), obligations of foreign governments or their subdivisions, agencies and instrumentalities, and obligations of supranational entities such as the World Bank, the European Investment Bank, and the Asian Development Bank. Any of these securities may be denominated in foreign currency or U.S. dollars, or may be traded in U.S. dollars in the United States although the underlying security is usually denominated in a foreign currency. 14 The risk of investing in foreign fixed income securities are the same as the risks of investing in foreign equity securities. Additionally, investment in sovereign debt (debt issued by governments and their agencies and instrumentality) can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be available or willing to repay the principal and/or interest when due in accordance with the terms of the debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy toward the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also depend on expected disbursements from foreign governments, multilateral agencies and others to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service its debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt (including the Funds) may be requested to participate in the rescheduling of such debt and to the extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part. Currency Contracts The value of a Fund invested in foreign securities will fluctuate as a result of changes in the exchange rates between the U.S. dollar and the currencies in which the foreign securities or bank deposits held by the Fund are denominated. To reduce or limit exposure to changes in currency exchange rates (referred to as "hedging"), a Fund may enter into forward currency exchange contracts that, in effect, lock in a rate of exchange during the period of the forward contracts. Forward contracts are usually entered into with currency traders, are not traded on securities exchanges, and usually have a term of less than one year, but can be renewed. A default on a contract would deprive a Fund of unrealized profits or force a Fund to cover its commitments for purchase or sale of currency, if any, at the market price. A Fund will enter into forward contracts only for hedging purposes and not for speculation. If required by the Investment Company Act or the SEC, a Fund may "cover" its commitment under forward contracts by segregating cash or liquid high-grade securities with a Fund's custodian in an amount not less than the current value of the Fund's total assets committed to the consummation of the contracts. Under normal market conditions, no more than 25 percent of the International Stock Fund's assets may be committed to the consummation of currency exchange contracts. A Fund may also purchase or sell foreign currencies on a "spot" (cash) basis or on a forward basis to lock in the U.S. dollar value of a transaction at the exchange rate or rates then prevailing. A Fund will use this hedging technique in an attempt to insulate itself against possible losses resulting from a change in the relationship between the U.S. dollar and the relevant foreign currency during the period between the date a security is purchased or sold and the date on which payment is made or received. Hedging against adverse changes in exchange rates will not eliminate fluctuation in the prices of a Fund's portfolio securities or prevent loss if the prices of those securities decline. In addition, the use of forward contracts may limit potential gains from an appreciation in the U.S. dollar value of a foreign currency. Forecasting short-term currency market movements is very difficult, and there is no assurance that short-term hedging strategies used by a Fund will be successful. Real Estate Investment Trusts ("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. 15 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. REPURCHASE AGREEMENTS A Fund may invest in repurchase agreements, which are agreements by which the Fund purchases a security and simultaneously commits to resell that security to the seller (a commercial bank or securities dealer) at a stated price within a number of days (usually not more than seven) from the date of purchase. The resale price reflects the purchase price plus a rate of interest that is unrelated to the coupon rate or maturity of the purchased security. Repurchase agreements may be considered loans by the Fund collateralized by the underlying security. The obligation of the seller to pay the stated price is in effect secured by the underlying security. The seller will be required to maintain the value of the collateral underlying any repurchase agreement at a level at least equal to the price of the repurchase agreement. In the case of default by the seller, the Fund could incur a loss. In the event of a bankruptcy proceeding commenced against the seller, the Fund may incur costs and delays in realizing upon the collateral. A Fund will enter into repurchase agreements only with those banks or securities dealers who are deemed creditworthy pursuant to criteria adopted by the Adviser. There is no limit on the portion of a Fund's assets that may be invested in repurchase agreements with maturities of seven days or less. Borrowing A Fund may borrow from a bank for temporary administrative purposes. This borrowing may be unsecured. Provisions of the Investment Company Act of 1940 (the "1940 Act") require a Fund to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300 percent of the amount borrowed, with an exception for borrowings not in excess of 5 percent of the Fund's total assets made for temporary administrative purposes. Any borrowings for temporary administrative purposes in excess of 5 percent of a Fund's total assets are subject to continuous asset coverage. If the 300 percent asset coverage declines as a result of market fluctuations or other reasons, a Fund may be required to sell some of its portfolio holdings within three days to reduce the debt and restore the 300 percent asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. Notwithstanding the above, certain of the Funds may not borrow in excess of 5 percent of their assets at any time. As previously noted, a Fund also may enter into certain transactions, including reverse repurchase agreements, mortgage dollar rolls, and sale-buybacks, that can be viewed as constituting a form of borrowing or financing transaction by the Fund. To the extent a Fund covers its commitment under such transactions (or economically similar transaction) by the segregation of assets determined in accordance with procedures adopted by the Board of Directors, equal in value to the amount of the Fund's commitment to repurchase, such an agreement will not be considered a "senior security" by the Fund and therefore will not be subject to the 300 percent asset coverage requirement otherwise applicable to borrowings by the Fund. Borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a Fund's portfolio. Money borrowed will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased. A Fund also may be required to maintain minimum average balances in connection with such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. ILLIQUID 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. Under current interpretations of the Staff of the SEC, the following instruments in which a Fund may invest will 16 be considered illiquid: (1) repurchase agreements maturing in more than seven days; (2) restricted securities (securities whose public resale is subject to legal restrictions, except as described in the following paragraph); (3) options, with respect to specific securities, not traded on a national securities exchange that are not readily marketable; and (4) any other securities in which a Fund may invest that are not readily marketable. The International Stock Fund, the Technology Fund, the Strategic Value Fund, the Small Cap Fund, the High Yield Fund, the Real Estate Fund and the Short Term Bond Fund may purchase without limit, however, certain restricted securities that can be resold to qualifying institutions pursuant to a regulatory exemption under Rule 144A ("Rule 144A securities"). If a dealer or institutional trading market exists for Rule 144A securities, such securities are deemed to be liquid and thus exempt from that Fund's liquidity restrictions. Under the supervision of the Board of Directors of the Funds, the Adviser determines the liquidity of the Funds' portfolio securities, including Rule 144A securities, and, through reports from the Adviser, the Board of Directors monitor trading activity in these securities. In reaching liquidity decisions, the Adviser will consider, among other things, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers willing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the procedures for the transfer). If institutional trading in Rule 144A securities declines, a Fund's liquidity could be adversely affected to the extent it is invested in such securities. 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 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 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 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 High Yield Fund or the Fixed Income Securities 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. INVESTMENTS IN SMALL AND UNSEASONED COMPANIES 17 Unseasoned and small companies may have limited or unprofitable operating histories, limited financial resources, and inexperienced management. In addition, they often face competition from larger or more established firms that have greater resources. Securities of small and unseasoned companies are frequently traded in the over-the-counter market or on regional exchanges where low trading volumes may result in erratic or abrupt price movements. To dispose of these securities, a Fund may need to sell them over an extended period or below the original purchase price. Investments by a Fund in these small or unseasoned companies may be regarded as speculative. Dollar Roll Transactions "Dollar roll" transactions consist of the sale by a Fund to a bank or broker-dealer (the "counterparty") of GNMA certificates or other mortgage-backed securities together with a commitment to purchase from the counterparty similar, but not identical, securities at a future date and at the same price. The counterparty receives all principal and interest payments, including prepayments, made on the security while it is the holder. The Fund receives a fee from the counterparty as consideration for entering into the commitment to purchase. Dollar rolls may be renewed over a period of several months with a new purchase and repurchase price fixed and a cash settlement made at each renewal without physical delivery of securities. Moreover, the transaction may be preceded by a firm commitment agreement pursuant to which the Fund agrees to buy a security on a future date. A Fund will not use such transactions for leveraging purposes and, accordingly, will segregate cash, U.S. Government securities or other high grade debt obligations in an amount sufficient to meet their purchase obligations under the transactions. The Funds will also maintain asset coverage of at least 300 percent for all outstanding firm commitments, dollar rolls and other borrowings. Dollar rolls may be treated for purposes of the 1940 Act as borrowings of the Fund because they involve the sale of a security coupled with an agreement to repurchase. Like all borrowings, a dollar roll involves costs to the Fund. For example, while a Fund receives a fee as consideration for agreeing to repurchase the security, the Fund foregoes the right to receive all principal and interest payments while the counterparty holds the security. These payments received by the counterparty may exceed the fee received by the Fund, thereby effectively charging the Fund interest on its borrowing. Further, although the Fund can estimate the amount of expected principal prepayment over the term of the dollar roll, a variation in the actual amount of prepayment could increase or decease the cost of the Fund's borrowing. When-Issued Securities When-issued, delayed-delivery and forward transactions generally involve the purchase of a security with payment and delivery in the future (i.e., beyond normal settlement). A Fund does not earn interest on such securities until settlement and bears the risk of market value fluctuations in between the purchase and settlement dates. New issues of stocks and bonds, private placements and U.S. Government securities may be sold in this manner. To the extent a Fund engages in when-issued and delayed-delivery transactions, it will do so to acquire portfolio securities consistent with its investment objectives and policies and not for investment leverage. A Fund may use spot and forward currency exchange transactions to reduce the risk associated with fluctuations in exchange rates when securities are purchased or sold on a when-issued or delayed delivery basis. ZERO-COUPON AND PAY-IN-KIND SECURITIES A zero-coupon security has no cash coupon payments. Instead, the issuer sells the security at a substantial discount from its maturity value. The interest equivalent received by the investor from holding this security to maturity is the difference between the maturity value and the purchase price. Pay-in-kind securities are securities that pay interest in either cash or additional securities, at the issuer's option, for a specified period. The price of pay-in-kind securities is expected to reflect the market value of the 18 underlying accrued interest, since the last payment. Zero-coupon and pay-in-kind securities are more volatile than cash pay securities. The Fund accrues income on these securities prior to the receipt of cash payments. The Fund intends to distribute substantially all of its income to its shareholders to qualify for pass-through treatment under the tax laws and may, therefore, need to use its cash reserves to satisfy distribution requirements. TEMPORARY INVESTMENTS When, as a result of market conditions, the Adviser determines a temporary defensive position is warranted to help preserve capital, a Fund may without limit temporarily retain cash, or invest in prime commercial paper, high-grade debt securities, securities of the U.S. Government and its agencies and instrumentalities, and high-quality money market instruments, including repurchase agreements. The International Stock Fund may invest in such securities issued by entities organized in the United States or any foreign country, denominated in U.S. dollars or foreign currency. When a Fund assumes a temporary defensive position, it is not invested in securities designed to achieve its investment objective. NON-DIVERSIFIED The Oregon Municipal Bond Fund and the Technology Fund are "non-diversified," which means that they may invest a greater percentage of their assets in the securities of a single issuer than the other Funds. Non-diversified funds are more susceptible to risks associated with a single economic, political, or regulatory occurrence than a more diversified portfolio might be. Some of those issuers also may present substantial credit or other risks. Similarly, the Oregon Municipal Bond Fund may be more sensitive to adverse economic, business or political developments in the State of Oregon and also if it invests a substantial portion of its assets in the bonds of similar projects. 19 Chart of Securities and Investment Practices
CCSF CGF CISF CSF CSCF CREF CTF CSVF -------- ------- -------- -------- -------- ------- -------- -------- Investment Grade * * * * * * * * Securities (Baa or higher by Moody's, BBB or higher by S&P or believed by Columbia to be equivalent), other than U.S. Government obligations and municipal securities Non-Investment Grade NA NA NA NA NA NA NA NA Securities Domestic Bank Obligations * * * * * * * * U.S. Government Securities * * * * * * * * Mortgage-Backed Securities NA NA NA NA NA NA NA NA CMOs NA NA NA NA NA NA NA NA Asset-Backed Securities NA NA NA NA NA NA NA NA Floating or Variable Rate NA NA NA NA NA NA NA NA Loan Transactions X X X X O O O O Options & Financial O O O O O O O O Futures Foreign Equities Developed Countries 33.3%, O 10%, O + 33.3%, O 25%, O 20%, O 25%, O 25%, + Emerging Countries X X + X X X X X ADRs 33.3%, O 10%, O + 33.3%, O 25%, O X 25%, O 25%, O Currency Contracts Hedging O O 25%, + O O O O O Speculation X X X X X X X X Spot Basis O O + O O O O O Repurchase Agreements * * * * * * * * Restricted/Illiquid 5%, O 5%, O 10%, O 10%, O 10%, O 10%, O 10%, O 10%, O (CISF, CSCF, CTF, CSVF, and CREF exclude 144A securities from definition of illiquid with board supervision) Convertible O O O + + + + + Securities/Warrants Unseasoned/less than 5%, O 5%, O 5%, O 10%, + 10%, + 5%, + 10%, O 10%, O three years operating history Small Companies O O O + + + + + Dollar Roll Transactions NA NA NA NA NA NA NA NA When-Issued Securities O O O O O O O O Foreign Fixed Income NA NA O NA NA NA NA NA Securities (including Foreign Bank Obligations) Zero Coupon/Pay in Kind NA NA NA NA NA NA NA NA Real Estate (excluding X X X X X X X X REITs) REITs + + O + + + O + Borrowing 5%, * 5%, * 33.3%, * 5%, * 5%, * 5%, * 33.3%, * 33.3%, * Municipal Bonds NA NA NA NA NA NA NA NA
+ Permitted - Part of principal investment strategy X Not permitted/Fundamental Policy O Permitted - Not a principal investment strategy * Temporary Investment or cash management purposes % Percentage of total or net assets that Fund may invest NA Not part of investment strategy 20
CSTB CFIS CMBF CNMF CHYF CBF CDIC -------- -------- -------- -------- --------- -------- --------- Investment Grade + + O O O + NA Securities (Baa or higher by Moody's, BBB or higher by S&P or believed by Columbia to be equivalent), other than U.S. Government obligations and municipal securities Non-Investment Grade 10%, O 10%, O NA NA + 10%, O NA Securities Domestic Bank Obligations * * * * * * + Commercial Paper * * * * * * + U.S. Government Securities + + * * * + + Mortgage-Backed Securities + + NA NA O + NA CMOs + + NA NA O + NA Asset-Backed Securities + + NA NA O + NA Floating or Variable Rate + + NA NA O + NA Loan Transactions O O O X O X X Options & Financial O X X X O O X Futures Foreign Equities Developed Countries NA NA NA NA NA 33.3%, O NA Emerging Countries NA NA NA NA NA X NA ADRs NA NA NA NA NA 33.3%, O NA Currency Contracts Hedging NA NA NA NA NA O NA Speculation NA NA NA NA NA X NA Spot Basis NA NA NA NA NA O NA Repurchase Agreements * * * * * * * Restricted/Illiquid (CHYF 10%, O 10%, O 10%, O 10%, O 10%, O 5%, O X and CSTB excludes 144A securities from definition of illiquid with board supervision) Convertible O O NA NA O O NA Securities/Warrants Unseasoned/less than 5%, O 5%, O NA NA 5%, + 5%, O NA three years operating history Small Companies NA NA NA NA + O NA Dollar Roll Transactions O O NA NA O O NA When-Issued Securities O O O O O O O Foreign Fixed Income 20%, O 20%, O NA NA 10%, O 20%, O NA Securities (including Foreign Bank Obligations) Zero Coupon/Pay in Kind O O + + O O NA Real Estate (excluding X X X X X X X REITs) REITs O O NA NA O O NA Borrowing 33.3%, * 5%, * 33.3%, * 33.3%, * 5%, * 5%, * 33.3%, * Municipal Bonds O O + + NA O NA
+ Permitted - Part of principal investment strategy X Fundamental policy/not permitted O Permitted - Not a principal investment strategy * Temporary Investment or cash management purposes % Percentage of total or net assets that Fund may invest NA Not part of investment strategy 21 INVESTMENT RESTRICTIONS The Prospectus sets forth the investment objectives and principal investment strategies applicable to each Fund. The following is a list of investment restrictions applicable to each Fund. If a percentage limitation is adhered to at the time of an investment by a Fund, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of the restriction. A Fund may not change these restrictions without the approval of a majority of its shareholders, which means the vote at any meeting of shareholders of a Fund of (i) 67 percent or more of the shares present or represented by proxy at the meeting (if the holders of more than 50 percent of the outstanding shares are present or represented by proxy) or (ii) more than 50 percent of the outstanding shares, whichever is less. COLUMBIA COMMON STOCK FUND, INC. The Common Stock Fund may not: 1. Buy or sell commodities. However, the Fund may invest in futures contracts relating to broadly based stock indices, subject to the restrictions in paragraph 15. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of the total assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of the total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 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, which operate in real estate or interests therein. 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). 5. Purchase a repurchase agreement with a maturity greater than seven days or a security that is subject to legal or contractual restrictions on resale or for which there are no readily available market quotations if, as a result of such purchase, more than 5 percent of the assets of the Fund (taken at current value) is invested in such securities. 6. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 5 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 the total assets of the Fund at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its agencies and instrumentalities), with reference to 75 percent of the assets of the Fund. 8. Purchase securities of other open-end investment companies. 9. Issue senior securities, bonds, or debentures. 10. Underwrite securities of other issuers, except that the Fund may acquire portfolio securities under 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. 11. Borrow money in excess of 5 percent of its net asset value. Any borrowing must only be temporarily from banks and for extraordinary or emergency purposes. 12. Invest its funds 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. 13. Invest in companies for the purpose of exercising control or management. 14. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 5 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 22 15. Buy and sell puts and calls as securities, stock index futures or options on stock index futures, or financial futures or options on financial futures, unless such options are written by other persons and the options or futures are offered through the facilities of a national securities association or are listed on a national securities or commodities exchange. 16. 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. COLUMBIA GROWTH FUND, INC. The Growth Fund may not: 1. Buy or sell commodities or commodity contracts. 2. Concentrate more than 25 percent of its investments in any one industry. 3. Buy or sell real estate. (However, the Fund may buy readily marketable securities such as real estate investment trusts.) 4. Make loans, except through the purchase of a portion of an issue of publicly distributed debt securities. 5. Hold more than 5 percent of the voting securities of any one company. 6. Purchase the securities of any issuer if the purchase at the time thereof would cause more than 5 percent of the assets of the Fund (taken at value) to be invested in the securities of that issuer, except U.S. Government bonds. 7. Purchase securities of any issuer when those officers and directors of the Fund who individually own 1/2 of 1 percent of the securities of that issuer together own 5 percent or more. 8. Purchase securities of other open-end investment companies. 9. Issue senior securities, bonds, or debentures. 10. Underwrite securities issued by others except as it may be deemed to be an underwriter of restricted securities. 11. Borrow money in excess of 5 percent of its net asset value. Any borrowing must only be temporarily from banks for extraordinary or emergency purposes. 12. Invest more than 5 percent of its total assets at cost in the securities of companies which (with predecessor companies) have a record of less than three years continuous operation and equity securities which are not readily marketable. 13. Invest in companies for purposes of control or management. 14. Buy securities on margin or make short sales. 15. Invest more than 5 percent of the value of its assets in securities which are subject to legal or contractual restrictions on resale or are otherwise not saleable. 16. 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. COLUMBIA INTERNATIONAL STOCK FUND, INC. The International Stock Fund may not: 1. Buy or sell commodities. However, the Fund may invest in futures contracts or options on such contracts relating to broadly based stock indices, subject to the restrictions in paragraph 15, and may enter into foreign currency transactions. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of its assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of its assets in securities issued or guaranteed by the United States or its agencies or instrumentalities. 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, which operate in real estate or interests therein. 23 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 and except to the extent the entry into repurchase agreements in accordance with the Fund's investment restrictions may be deemed a loan. 5. Purchase a repurchase agreement with a maturity greater than seven days or a security that is subject to legal or contractual restrictions on resale or for which there are no readily available market quotations if, as a result of such purchase, more than 10 percent of the assets of the Fund (taken at current value) is invested in such securities. 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 this 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 by the Fund. 7. Purchase the securities of any issuer (including any foreign government issuer) if the purchase, at the time thereof, would cause more than 5 percent of the value of the total assets of the Fund at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its agencies and instrumentalities), with reference to 75 percent of the assets of the Fund. 8. Purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter or dealer's commission or profit, other than customary broker's commission, is involved and only if immediately thereafter not more than (i) 3 percent of the total outstanding voting stock of such company is owned by the Fund, (ii) 5 percent of the Fund's total assets would be invested in any one such company, and (iii) 10 percent of the Fund's total assets would be invested in such securities. 9. Issue senior securities, bonds, or debentures. 10. Underwrite securities of other issuers, except that 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. 11. Borrow money, except temporarily for extraordinary or emergency purposes. For all amounts borrowed, the Fund will maintain an asset coverage of 300 percent. The Fund will not make any additional investments while borrowings exceed 5 percent of the Fund's total assets. 12. Invest its funds in the securities of any company if the purchase 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. 13. Invest in companies for the purpose of exercising control or management. 14. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 5 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 15. Buy and sell puts and calls as securities, stock index futures or options on stock index futures, or financial futures or options on financial futures, unless such options are written by other persons and the options or futures are offered through the facilities of a recognized securities association or are listed on a recognized securities or commodities exchange or similar entity. 16. 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. COLUMBIA SPECIAL FUND, INC. The Special Fund may not: 1. Buy or sell commodities. However, the Fund may invest in futures contracts relating to broadly based stock indices, subject to the restrictions in paragraph 15. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of the total assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of the total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 24 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, which operate in real estate or interests therein. 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). 5. Purchase a repurchase agreement with a maturity greater than seven days or a security that is subject to legal or contractual restrictions on resale or for which there are no readily available market quotations if, as a result of such purchase, more than 10 percent of the assets of the Fund (taken at current value) is invested in such securities. 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 the total assets of the Fund at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its agencies and instrumentalities), with reference to 75 percent of the assets of the Fund. 8. Purchase securities of other open-end investment companies. 9. Issue senior securities, bonds, or debentures. 10. Underwrite securities of other issuers, except that the Fund may acquire portfolio securities under 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. 11. Borrow money in excess of 5 percent of its net asset value. Any borrowing must only be temporarily from banks and for extraordinary or emergency purposes. 12. Invest its funds in the securities of any company if the purchase, at the time thereof, would cause more than 10 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. 13. Invest in companies for the purpose of exercising control or management. 14. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 10 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 15. Buy and sell puts and calls as securities, stock index futures or options on stock index futures, or financial futures or options on financial futures, unless such options are written by other persons and the options or futures are offered through the facilities of a national securities association or are listed on a national securities or commodities exchange. 16. 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. COLUMBIA SMALL CAP FUND, INC. The Small Cap Fund may not: 1. Buy or sell commodities. However, the Fund may invest in futures contracts relating to broadly based stock indices, subject to the restrictions in paragraph 15. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of the total assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of the total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 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, which operate in real estate or interests therein. 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). 25 5. Purchase a repurchase agreement with a maturity greater than seven days or a security that is subject to legal or contractual restrictions on resale or for which there are no readily available market quotations if, as a result of such purchase, more than 10 percent of the assets of the Fund (taken at current value) is invested in such securities. 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 the total assets of the Fund at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its agencies and instrumentalities), with reference to 75 percent of the assets of the Fund. 8. Purchase securities of other open-end investment companies. 9. Issue senior securities, bonds, or debentures. 10. Underwrite securities of other issuers, except that the Fund may acquire portfolio securities under 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. 11. Borrow money in excess of 5 percent of its net asset value. Any borrowing must only be temporarily from banks and for extraordinary or emergency purposes. 12. Invest its funds in the securities of any company if the purchase, at the time thereof, would cause more than 10 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. 13. Invest in companies for the purpose of exercising control or management. 14. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to securities held by the Fund. In any event, no more than 10 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 15. Buy and sell puts and calls as securities, stock index futures or options on stock index futures, or financial futures or options on financial futures, unless such options or futures are offered through the facilities of a national securities association or are listed on a national securities or commodities exchange. The Fund may write call options that are covered in accordance with rules established by the SEC. 16. 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. COLUMBIA REAL ESTATE EQUITY FUND, INC. The Real Estate Fund may not: 1. Buy or sell commodities or commodity futures contracts. 2. 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. 3. 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. 4. 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, in that event, will not be subject to the above investment restriction. 26 5. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 10 percent of the outstanding voting securities of that issuer to be held in the Fund. 6. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 5 percent of the value of its total assets at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its instrumentalities), with reference to 75 percent of the assets of the Fund. 7. Purchase or retain securities of an issuer if those officers or directors of the Fund or 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. 8. Purchase securities of other open-end investment companies. 9. Issue senior securities, bonds, or debentures. 10. 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. 11. Borrow money except as a temporary measure for extraordinary or emergency purposes. The Fund's borrowings may not exceed 5 percent of its gross assets valued at the lesser of cost or market value, nor may it pledge, mortgage, or hypothecate assets if the market value of such assets exceeds 10 percent of the gross assets, valued at cost, of the Fund. 12. 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. 13. Invest in companies to exercise control or management. 14. 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. 15. Engage in short sales of securities except to the extent that it owns other securities convertible into an equivalent amount of such securities. These short sales may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 10 percent of the Fund's net assets valued at market may, at any time, be held as collateral for such sales. 16. 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. 17. Concentrate investments in any one industry, except that the Fund will invest at least 65 percent of the value of its total assets in securities of companies principally engaged in the real estate industry. COLUMBIA TECHNOLOGY FUND, INC. The Technology Fund may not: 1. Buy or sell commodities or commodities contracts or oil, gas or mineral programs, except that the Fund may purchase, sell or enter into financial futures contracts and options on future contracts, foreign currency forward contracts, foreign currency options, or any interest rate, securities-related or foreign currency related hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of the total assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of the total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 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, which operate in real estate or interests therein. 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), provided however, 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. 27 5. Purchase securities of other open-end investment companies except as permitted by Section 12(d)(1)(A) of the Investment Company Act of 1940. 6. Underwrite securities of other issuers, except that the Fund may acquire portfolio securities under 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. 7. Borrow money, issue senior securities, or pledge, mortgage or hypothecate its assets, except that the Fund may (i) borrow from banks, but only if immediately after each borrowing there is asset coverage of 300 percent, (ii) enter into transactions in options futures, options on futures, and other derivative instruments as described in the Prospectus and this Statement of Additional Information (the deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a when-issued or delayed delivery basis, collateral arrangements with respect to initial or variation margin deposit for futures contracts and commitments entered into under swap agreements or other derivative instruments, will not be deemed to be pledges of the Fund's assets), (iii) enter into reverse repurchase agreements, dollar roll transactions or economically similar transactions to the extent its commitment under such transaction is covered by the segregation of assets, and (iv) borrow money as a temporary measure for extraordinary or emergency purposes provided that such borrowings do not exceed 5 percent of the gross assets of the Fund valued at the lesser of cost or market value, and the Fund does not 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. 8. Invest its funds in the securities of any company if the purchase, at the time thereof, would cause more than 10 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. 9. Invest in companies for the purpose of exercising control or management. 10. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 10 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 11. Buy any securities or other property on margin except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities, but the Fund may make margin deposits in connection with transactions in options, futures, and options on futures or purchase or sell puts or calls, or confirmations thereof. 12. Purchase illiquid securities, if upon the purchase more than 10 percent of the value of the Fund's net assets would consist of these securities. See "DESCRIPTION OF THE FUNDS, INVESTMENTS HELD AND INVESTMENT PRACTICES BY THE FUNDS" for a complete discussion of illiquid securities. COLUMBIA STRATEGIC VALUE FUND, INC. The Strategic Value Fund may not: 1. Buy or sell commodities or commodities contracts or oil, gas or mineral programs, except that the Fund may purchase, sell or enter into financial futures contracts and options on future contracts, foreign currency forward contracts, foreign currency options, or any interest rate, securities-related or foreign currency related hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of the total assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of the total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 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, which operate in real estate or interests therein. 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), provided, however, the Fund may lend portfolio securities to broker-dealers or other institutional investors if, as a result thereof, the aggregate value of all securities loaned does not exceed 33 1/3 percent of its total assets. 5. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 5 percent of the value of the total assets of the Fund at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its agencies and instrumentalities), with reference to 75 percent of the assets of the Fund. 28 6. Purchase securities of other open-end investment companies except as permitted by Section 12(d)(1)(A) of the Investment Company Act of 1940. 7. Underwrite securities of other issuers, except that the Fund may acquire portfolio securities under 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. 8. Borrow money, issue senior securities, or pledge, mortgage or hypothecate its assets, except that the Fund may (i) borrow from banks, but only if immediately after each borrowing there is asset coverage of 300 percent, (ii) enter into transactions in options futures, options on futures, and other derivative instruments as described in the Prospectus and this Statement of Additional Information (the deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a when-issued or delayed delivery basis, collateral arrangements with respect to initial or variation margin deposit for futures contracts and commitments entered into under swap agreements or other derivative instruments, will not be deemed to be pledges of the Fund's assets), (iii) enter into reverse repurchase agreements, dollar roll transactions or economically similar transactions to the extent its commitment under such transaction is covered by the segregation of assets, and (iv) borrow money as a temporary measure for extraordinary or emergency purposes provided that such borrowings do not exceed 5 percent of the gross assets of the Fund valued at the lesser of cost or market value, and the Fund does not 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. 9. Invest its funds in the securities of any company if the purchase, at the time thereof, would cause more than 10 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. 10. Invest in companies for the purpose of exercising control or management. 11. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 10 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 12. Buy any securities or other property on margin except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities, but the Fund may make margin deposits in connection with transactions in options, futures, and options on futures or purchase or sell puts or calls, or confirmations thereof. 13. Purchase illiquid securities, if upon the purchase more than 10 percent of the value of the Fund's net assets would consist of these securities. See "DESCRIPTION OF THE FUNDS, INVESTMENTS HELD AND INVESTMENT PRACTICES BY THE FUNDS" for a complete discussion of illiquid securities. 29 COLUMBIA BALANCED FUND, INC. The Balanced Fund may not: 1. Buy or sell commodities. However, the Fund may invest in futures contracts relating to broadly based stock indices, subject to the restrictions in paragraph 15. 2. Concentrate investments in any industry. However, the Fund may (a) invest up to 25 percent of the value of the total assets in any one industry and (b) invest for temporary defensive purposes up to 100 percent of the value of the total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 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, which operate in real estate or interests therein. 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). 5. Purchase a repurchase agreement with a maturity greater than seven days or a security that is subject to legal or contractual restrictions on resale or for which there are no readily available market quotations if, as a result of such purchase, more than 5 percent of the assets of the Fund (taken at current value) is invested in such securities. 6. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 5 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 the total assets of the Fund at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its agencies and instrumentalities), with reference to 75 percent of the assets of the Fund. 8. Purchase securities of other open-end investment companies. 9. Issue senior securities, bonds, or debentures. 10. Underwrite securities of other issuers, except that the Fund may acquire portfolio securities under 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. 11. Borrow money in excess of 5 percent of its net asset value. Any borrowing must only be temporarily from banks and for extraordinary or emergency purposes. 12. Invest its funds 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. 13. Invest in companies for the purpose of exercising control or management. 14. Engage in short sales of securities except to the extent that it owns an equal amount of the securities sold short or other securities convertible into an equivalent amount of such securities ("short sales against the box"). Such transactions may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 5 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. 15. Buy and sell puts and calls as securities, stock index futures or options on stock index futures, or financial futures or options on financial futures, unless such options are written by other persons and the options or futures are offered through the facilities of a national securities association or are listed on a national securities or commodities exchange. 16. 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. COLUMBIA SHORT TERM BOND FUND, INC. The Short Term Bond Fund may not: 1. Issue senior securities, bonds, or debentures. 30 2. Buy any securities or other property 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 or purchase or sell puts or calls, or confirmations thereof. 3. Borrow money, issue senior securities, or pledge, mortgage or hypothecate its assets, except that the Fund may (i) borrow from banks, but only if immediately after each borrowing there is asset coverage of 300 percent, (ii) enter into transactions in options futures, options on futures, and other derivative instruments as described in the Prospectus and this Statement of Additional Information (the deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a when-issued or delayed delivery basis, collateral arrangements with respect to initial or variation margin deposit for futures contracts and commitments entered into under swap agreements or other derivative instruments, will not be deemed to be pledges of the Fund's assets), (iii) enter into reverse repurchase agreements, dollar roll transactions or economically similar transactions to the extent its commitment under such transaction is covered by the segregation of assets, and (iv) borrow money as a temporary measure for extraordinary or emergency purposes provided that such borrowings do not exceed 5 percent of the gross assets of the Fund valued at the lesser of cost or market value, and the Fund does not 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. 4. 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 temporary defensive purposes up to 80 percent of the value of its total assets in certificates of deposit (C/D's) and bankers' acceptances with maturities not greater than one year. C/D's and bankers' acceptances will be limited to domestic banks that have total assets in excess of $1 billion and are subject to regulatory supervision by the U.S. Government or state governments. Commitments to purchase securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities on a "when-issued" basis may not exceed 20 percent of the total assets of the Fund. Emphasis on investments in securities of a particular industry will be shifted whenever the adviser determines that such action is desirable for investment reasons. The directors will periodically review these decisions of the adviser. 5. 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, as amended. 6. Purchase illiquid securities, if upon the purchase more than 10 percent of the value of the Fund's net assets would consist of such illiquid securities. 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. Buy or sell real estate. However, the Fund may purchase or hold securities issued by companies, such as real estate investment trusts, that deal in real estate or interests therein, and participation interests in pool of real estate mortgage loans. 9. Buy or sell commodities or commodities contracts or oil, gas or mineral programs, except that the Fund may purchase, sell or enter into financial futures contracts and options on future contracts, foreign currency forward contracts, foreign currency options, or any interest rate, securities-related or foreign currency related hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. 10. 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. 11. Make loans to other persons (except by purchase of short-term commercial paper, bonds, debentures, repurchase agreements 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. 12. Purchase securities of other open-end investment companies, except as permitted by Section 12(d)(1)(A) of the 1940 Act. 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 of continuous operation. 14. Invest in companies to exercise control or management. 31 15. Purchase or retain securities of an issuer, any of whose officers or directors or security holders is an officer or director of the Fund or of its adviser if, or so long as, the officers and directors of the Fund and of its adviser together own beneficially more than 5 percent of any class of securities of the issuer. 16. Engage in short sale of securities except to the extent that it owns other securities convertible into an equivalent amount of such securities. These short sales may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event no more than 10 percent of the Fund's net assets valued at market may, at any time, be held as collateral for such sales. COLUMBIA FIXED INCOME SECURITIES FUND, INC. The Fixed Income Securities 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 certificates of deposit (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 one billion dollars and are subject to regulatory supervision by the U.S. Government or state governments. Commitments to purchase securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities on a "when-issued" basis may not exceed 20 percent of the total assets of the Fund. Emphasis on investments in securities of a particular industry will be shifted whenever 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, which 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 a repurchase agreement with a maturity greater than seven days or a security that is subject to legal or contractual restrictions on resale or for which there are no readily available market quotations, if, as a result of such purchase, more than 10 percent of its total assets (taken at current value) are invested in such securities. 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 issued by an issuer, any of whose officers or directors or security holders is an officer or director of the Fund or of its adviser if, or so long as, the officers and directors of the Fund and of its adviser together own beneficially more than 5 percent of any class of securities of the issuer. 9. Purchase 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 value of the gross assets of the Fund taken at the lesser of cost or market value, nor may it pledge, mortgage, or hypothecate assets taken at market to an extent greater than 10 percent of the value of the gross assets taken 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. 32 15. Buy any securities or other property on margin, or purchase or sell puts or calls, or combinations thereof. 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 convertible securities. In any event, no more than 10 percent of the value of the Fund's net assets taken at market may, at any time, be held as collateral for such sales. COLUMBIA NATIONAL MUNICIPAL BOND FUND, INC. The National Municipal Bond Fund may not: 1. Buy or sell real estate, but this shall not prevent the Fund from investing in municipal obligations secured by real estate or interests therein. 2. Make loans to other persons except by purchase of debt securities constituting all or part of an issue or through the loan of portfolio securities and as otherwise permitted by the Fund's investment restrictions. 3. Purchase more than 10 percent of the voting securities of any issuer. 4. Buy or sell commodities or commodity future contracts. 5. Purchase securities of other investment companies if, as a result of the purchase, more than 10 percent of the assets of the Fund is invested in such securities. 6. Issue senior securities, bonds, or debentures. 7. Sell securities short or buy any securities or other property on margin, except for short-term credits necessary for clearing transactions. 8. Lend portfolio securities to broker-dealers or other institutional investors if, as a result, the aggregate value of all securities loaned exceeds 33 1/3 percent of the total assets of the Fund. 9. Underwrite securities of other issuers, except that 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 an underwriter for purposes of the Securities Act of 1933. 10. Borrow money except temporarily for extraordinary or emergency purposes; nor may it pledge, mortgage, or hypothecate assets having a market value greater than 10 percent of the cost of the gross assets of the Fund. For amounts borrowed, the Fund shall maintain an asset coverage of 300 percent for all borrowings. This restriction means that the Fund may not borrow money in an amount exceeding 50 percent of its gross assets. The Fund will not make any additional investments while borrowings exceed 5 percent of the value of the Fund's total assets. 11. Invest more than 25 percent of its assets in a single industry. COLUMBIA OREGON MUNICIPAL BOND FUND, INC. The Oregon Municipal Bond Fund may not: 1. Buy or sell real estate, but this shall not prevent the Fund from investing in municipal obligations secured by real estate or interests therein. 2. Make loans to other persons except by purchase of debt securities constituting all or part of an issue or through the loan of portfolio securities and as otherwise permitted by the Fund's investment restrictions. 3. Purchase more than 10 percent of the voting securities of any issuer. 4. Buy or sell commodities or commodity future contracts. 5. Purchase securities of other investment companies if, as a result of the purchase, more than 10 percent of the assets of the Fund is invested in such securities. 6. Issue senior securities, bonds, or debentures. 7. Sell securities short or buy any securities or other property on margin, except for short-term credits necessary for clearing transactions. 33 8. Lend portfolio securities to broker-dealers or other institutional investors if, as a result, the aggregate value of all securities loaned exceeds 33 1/3 percent of the total assets of the Fund. 9. Underwrite securities of other issuers, except that 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 an underwriter for purposes of the Securities Act of 1933. 10. Borrow money except temporarily for extraordinary or emergency purposes; nor may it pledge, mortgage, or hypothecate assets having a market value greater than 10 percent of the cost of the gross assets of the Fund. For amounts borrowed, the Fund shall maintain an asset coverage of 300 percent for all borrowings. This restriction means that the Fund may not borrow money in an amount exceeding 50 percent of its gross assets. The Fund will not make any additional investments while borrowings exceed 5 percent of the value of the Fund's total assets. 11. Invest more than 25 percent of its assets in a single industry. COLUMBIA HIGH YIELD FUND, INC. The High Yield Fund may not: 1. Buy or sell commodities or commodity futures contracts. 2. Concentrate investments in any industry. However, it may (a) invest up to 25 percent of the value of its total assets in any one industry, (b) invest up to 100 percent of the value of its total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and (c) invest for defensive purposes up to 80 percent of the value of its total assets in CDs and bankers' acceptances with maturities not greater than one year. CDs and bankers' acceptances will be limited to domestic banks which have total assets in excess of $1 billion and are subject to regulatory supervision by the U.S. Government or state governments. Commitments to purchase securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities on a "when-issued" basis may not exceed 20 percent of the total assets of the Fund. Emphasis on investments in securities of a particular industry will be shifted whenever 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. Purchase 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. 34 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 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. COLUMBIA DAILY INCOME COMPANY The Columbia Daily Income Company may not: 1. Borrow money to improve portfolio yield except as a temporary measure to avoid disruptive redemptions, and not for investment purposes. Borrowings will not exceed 33 1/3 percent of total assets and will be repaid from the proceeds of sales of the Fund's shares or as maturities allow. 2. Underwrite securities issued by others except as it may be deemed to be an underwriter in a sale of restricted securities. 3. Invest more than 5 percent of its assets (exclusive of obligations issued or guaranteed as to principal and interest by the U.S. Government or any agency or instrumentality thereof) in the securities of any one issuer. The Fund may invest up to 100 percent of its total assets in obligations of U.S. banks which are members of the Federal Reserve System. However, the Fund will not invest more than 25 percent of its assets in any other single industry. 4. Buy or sell real estate. 5. Buy or sell commodities or commodity contracts. 6. Make loans to others (the purchase of obligations in which the Fund is authorized to invest will not constitute loans) except that the Fund may purchase and simultaneously resell for later delivery obligations issued or guaranteed as to principal and interest by the U.S. Government or any agency or instrumentality thereof if no more than 10 percent of the Fund's total assets would be subject to such repurchase agreements maturing in more than seven days. 7. Purchase common stocks, preferred stocks, warrants, or other equity securities. 8. Purchase securities on margin. 9. Sell securities short. 10. Write or purchase put or call options. 11. Purchase a security which is subject to legal or contractual restrictions on resale or for which there is no readily available market, except that 10 percent of the Fund's total assets may be invested in repurchase agreements maturing in more than seven days. 12. Invest in companies to exercise control or management. 13. Invest in the securities of other investment companies, except those acquired as part of a merger, consolidation, or acquisition of assets. INVESTMENT RESTRICTIONS UNDER RULE 2A-7 35 Rule 2a-7 under the 1940 Act requires that all portfolio securities of the Columbia Daily Income Company have at the time of purchase a maximum remaining maturity (as defined in the rule) of 13 months and that the Fund maintain a dollar-weighted average portfolio maturity of not more than 90 days. (The Fund, however, will be invested in short-term debt obligations maturing within 12 months.) Rule 2a-7 further requires that investments by a money market fund must present minimal credit risk and, if rated, must be rated within one of the two highest rating categories for short-term debt obligations by at least two major rating agencies assigning a rating to the securities or issuer or, if only one rating agency has assigned a rating, by that agency. Purchases of securities which are unrated or rated by only one rating agency must be approved or ratified by the Board of Directors of the Fund. Securities that are rated (or that have been issued by an issuer that is rated with respect to a class of short-term debt obligations, or any security within that class, comparable in priority and quality with such securities) in the highest category by at least two major rating agencies are designated "First Tier Securities." Securities rated in the top two categories by at least two major rating agencies, but which are not rated in the highest category by two or more major rating agencies, are designated "Second Tier Securities." Securities which are unrated may be purchased only if they are deemed to be of comparable quality to rated securities. Under Rule 2a-7, a fund may not invest more than the greater of 1 percent of its total assets or one million dollars, measured at the time of investment, in the securities of a single issuer that were Second Tier Securities when acquired by the fund. In addition, a money market fund may not under Rule 2a-7 invest more than 5 percent of its total assets in securities that were Second Tier Securities when acquired. The Fund may not invest more than 5 percent of its total assets in the securities of any one issuer, except this limitation does not apply to U.S. Government securities and repurchase agreements thereon. The Fund may, however, invest more than 5 percent of its total assets in the First Tier Securities of a single issuer for up to three business days, although the Fund may not make more than one such investment at any one time. Investment policies by the Fund are in certain circumstances more restrictive than the restrictions under Rule 2a-7. In particular, investments by the Fund are restricted to the following: 1. Securities issued or guaranteed as to principal and interest by the U.S. Government or issued or guaranteed by agencies or instrumentalities thereof and repurchase agreements relating to these securities. 2. Commercial paper which, if rated by S&P or Moody's is rated A-1 by S&P and Prime 1 by Moody's or, if not rated, is determined to be of comparable quality by the Board of Directors of the Fund. 3. Other corporate debt securities with remaining maturities of less than 12 months, including bonds and notes, of an issuer that has received ratings from S&P and Moody's for its other short-term debt obligations as described in paragraph 2 above, where such corporate debt securities are comparable in priority and security to the rated short-term debt obligations or, if no ratings are available, where such corporate debt securities are determined to be of comparable quality under procedures approved by the Board of Directors of the Fund. 4. Obligations of U.S. banks that are members of the Federal Reserve System and have capital surplus and undivided profits as of the date of their most recent published financial statements in excess of $100 million and are determined by the Board of Directors of the Fund to be of comparable quality to the obligations described in paragraphs 2 or 3 above. Currently these obligations are CDs, bankers' acceptances, and letters of credit. MANAGEMENT Each Fund is managed under the supervision of its Board of Directors, which has responsibility for overseeing decisions relating to the investment policies and objectives of the Fund. The Board of Directors of each Fund meets quarterly to review the Fund's investment policies, performance, expenses, and other business matters. The directors and officers of the Funds are listed below. There is no family relationship between any of the directors. 36 DIRECTORS AND OFFICERS INTERESTED DIRECTOR & PRINCIPAL OFFICERS:
------------------------------------------------------------------------------------------------------------------------- NAME, ADDRESS AND AGE POSITION(S) TERM OF OFFICE PRINCIPAL NUMBER OF OTHER HELD WITH AND LENGTH OF OCCUPATION(S) PORTFOLIOS DIRECTORSHIPS FUNDS TIME SERVED** DURING PAST 5 IN FUND HELD BY YEARS*** COMPLEX DIRECTOR OVERSEEN BY DIRECTOR ------------------------------------------------------------------------------------------------------------------------- J. Jerry Inskeep, Jr.(1)* Chairman and Served for 36 Years Chairman and 23 None 1300 S.W. Sixth Avenue Director President of Portland, OR 97201 Columbia Funds (71 years old) and CMC Fund Trust ------------------------------------------------------------------------------------------------------------------------- Jeff B. Curtis* President Served for 2 Years President of 1300 S.W. Sixth Avenue and Columbia Funds Portland, OR 97201 Assistant Management (48 years old) Secretary Company and Columbia Management Co. ------------------------------------------------------------------------------------------------------------------------- Thomas L. Thomsen* Vice Served for 2 Years Chief Executive 1300 S.W. Sixth Avenue President Officer of Portland, OR 97201 Columbia Funds (57 years old) Management Company and Columbia Management Co. ------------------------------------------------------------------------------------------------------------------------- Myron G. Child* Vice Served for 2 Years Vice President 1300 S.W. Sixth Avenue President of Columbia Portland, OR 97201 Trust Company (61 years old) ------------------------------------------------------------------------------------------------------------------------- Kathleen M. Griffin* Vice Served for 2 Years Vice President 1300 S.W. Sixth Avenue President of Columbia Portland, OR 97201 Financial (42 years old) Center Incorporated ------------------------------------------------------------------------------------------------------------------------- Jeffrey L. Lunzer* Vice Served for 2 Years Vice President 1300 S.W. Sixth Avenue President of Columbia Portland, OR 97201 Funds (41 years old) Management Company and Columbia Management Co. -------------------------------------------------------------------------------------------------------------------------
- ---------- (1) Mr. Inskeep is deemed to be interested because he is affiliated with the Adviser. 37 Susan J. Woodworth* Vice Served for 2 Years Vice President 1300 S.W. Sixth Avenue President of Columbia Portland, OR 97201 Trust Company (49 years old) ------------------------------------------------------------------------------------------------------------------------- Mark A. Wentzien* Secretary Served for 2 Years Vice President 1300 S.W. Sixth Avenue of Columbia Portland, OR 97201 Funds (41 years old) Management Company and Columbia Management Co. -------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS:'
NAME, ADDRESS AND AGE POSITION(S) TERM OF OFFICE AND PRINCIPAL NUMBER OF OTHER HELD WITH LENGTH OF TIME OCCUPATION(S) PORTFOLIOS IN DIRECTORSHIPS FUNDS SERVED** DURING PAST FUND COMPLEX HELD BY 5 YEARS OVERSEEN BY DIRECTOR DIRECTOR ------------------------------------------------------------------------------------------------------------------------- James C. George Director Served for 8 Years Investment 23 None 1001 S.W. 5th Avenue Consultant Suite 1100 Portland, OR 97204 (69 years old) ------------------------------------------------------------------------------------------------------------------------- Patrick J. Simpson Director Served for 2 Years Lawyer, Perkins 23 None 1211 S.W. 5th Avenue Coie LLP Suite 1500 Portland, OR 97204 (57 years old) ------------------------------------------------------------------------------------------------------------------------- Richard L. Woolworth Director Served for 11 Years Chairman/CEO, 23 The 100 S.W. Market St. #1500 The Regence Regence Portland, OR 97207 Group Group, (60 years old) Regence BlueCross BlueShield of Oregon -------------------------------------------------------------------------------------------------------------------------
- ---------- * Interested person as defined by the 1940 Act. ** Each director serves for an indefinite term in accordance with the current Bylaws of each Fund until the date a director resigns, retires or is removed in accordance with the Bylaws of each Fund. *** All of the officers of the Funds are employees and officers of the Adviser and/or its affiliates. Only principal occupations are listed. 38 Board of Directors The directors of the Funds are responsible for overseeing decisions relating to the investment policies and objectives of the Funds. The Funds hire other parties that are responsible for the day-to-day operations of the Fund, such as the Adviser, transfer agent and custodian. The directors meet quarterly to review the Funds' investment policies, performance, expenses, and other business matters. The Funds established an Audit Committee in January 2002. The Audit Committee will consider and engage, on an annual basis, the Funds' independent auditors, review with management and the independent auditors the financial statements included in the Funds' Annual Report to Shareholders, and generally oversee the audit process. The Audit Committee is composed of the Funds' three disinterested directors (Messrs. George, Simpson, and Woolworth). In addition, each of the Funds adopted a nominating policy in January 2002 under which the disinterested directors of the Funds are responsible for selecting and nominating candidates for election to serve as directors. The disinterested directors will not consider nominees recommended by Fund shareholders. The following table sets forth the dollar range of shares owned by each director as of December 31, 2001 of (i) each individual Fund and (ii) all of the funds in the Columbia Funds Complex: INTERESTED DIRECTOR:
Dollar Range of Aggregate Dollar Range of Equity Equity Securities in Funds Overseen by Securities in Director in Columbia Director the Fund Funds Complex - -------- -------- ------------- J. JERRY INSKEEP, JR. Common Stock Fund Over $100,000 Over $100,000 Balanced Fund None Growth Fund Over $100,000 Special Fund Over $100,000 Small Cap Fund Over $100,000 International Stock Fund Over $100,000 Real Estate Equity Fund Over $100,000 Strategic Value Fund Over $100,000 Technology Fund Over $100,000 Daily Income Company Over $100,000 Fixed Income Securities Fund $10,001-$50,000 Short Term Bond Fund None High Yield Fund None Oregon Municipal Bond Fund Over $100,000 National Municipal Bond Fund Over $100,000
39 DISINTERESTED DIRECTORS:
Dollar Range of Aggregate Dollar Range of Equity Equity Securities in Funds Overseen by Securities in Director in Columbia Director the Fund Funds Complex - -------- -------- ------------- JAMES C. GEORGE Common Stock Fund Over $100,000 Over $100,000 Balanced Fund None Growth Fund Over $100,000 Special Fund Over $100,000 Small Cap Fund Over $100,000 International Stock Fund Over $100,000 Real Estate Equity Fund Over $100,000 Strategic Value Fund $1-$10,000 Technology Fund $1-$10,000 Daily Income Company Over $100,000 Fixed Income Securities Fund None Short Term Bond Fund None High Yield Fund $50,001-$100,000 Oregon Municipal Bond Fund None National Municipal Bond Fund None PATRICK J. SIMPSON Common Stock Fund None $50,001-$100,000 Balanced Fund $1-$10,000 Growth Fund $50,001-$100,000 Special Fund $10,001-$50,000 Small Cap Fund None International Stock Fund None Real Estate Equity Fund None Strategic Value Fund None Technology Fund None Daily Income Company None Fixed Income Securities Fund None Short Term Bond Fund None High Yield Fund None Oregon Municipal Bond Fund None National Municipal Bond Fund None RICHARD L. WOOLWORTH Common Stock Fund Over $100,000 Over $100,000 Balanced Fund None Growth Fund Over $100,000 Special Fund Over $100,000 Small Cap Fund Over $100,000 International Stock Fund $10,001-$50,000 Real Estate Equity Fund $1-$10,000 Strategic Value Fund $10,001-$50,000 Technology Fund None Daily Income Company $10,001-$50,000 Fixed Income Securities Fund Over $100,000 Short Term Bond Fund None High Yield Fund None Oregon Municipal Bond Fund Over $100,000 National Municipal Bond Fund None
As of December 31, 2001, none of the disinterested directors or members of their immediate families owned any securities of the Adviser or any other entity directly or indirectly controlling, controlled by, or under common control with the Adviser. Approval of Investment Advisory Contract Each of the Funds has entered into a separate investment advisory contract with the Adviser. The investment advisory contract is subject to annual approval by the Board of Directors, including a majority of disinterested directors. The existing contracts were last considered and approved at an in-person meeting held in April 2001. In determining the reasonableness of the advisory fees under the contract, the directors considered several factors, including: 40 - - The nature and quality of services provided to the Funds' shareholders, - - The profitability of the advisory contract for the Adviser, - - Fall-out benefits realized by the Adviser from service as adviser to the Funds, and - - A comparison of the fee structures of other mutual funds. In reviewing the quality of services provided by the Adviser, the directors examined the performance of the Funds compared to other mutual funds with similar investment objectives and against one or more securities indices that were considered appropriate. Performance over one and three-year periods for each Fund were reviewed as well as ratings from Lipper Inc. In addition, the directors assessed the day-to-day management of the Funds, reviewing information provided at the meeting at which the contract was approved and at earlier meetings during the fiscal year. The directors reviewed overall expense ratios of the Funds, including the aggregate expenses of the Funds to their net assets, as well as several individual expense items to the Funds' net assets such as the management fee, transfer agent fee, and custodian fee. Based on its review, the directors found the quality of services provided to the Funds' shareholders to be excellent and the total expense ratio of the funds to be below or comparable to funds with similar investment objectives, strategy, size and distribution methods. The directors reviewed data related to the profitability of the Adviser with respect to its contracts with the Funds and found it to be within the range approved by courts in the past. The directors also considered the benefit to affiliates of the Adviser as the result of its management of the Funds, including Columbia Trust Company, which serves as transfer agent for the Funds. After considering the material factors listed above, and each Fund's specific circumstance, the directors concluded that the advisory contract of each Fund with the Adviser was reasonable for such Fund and in the best interests of shareholders. See the section entitled "INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES" for further information about the Adviser and the Funds' investment advisory contract. The following table sets forth compensation received by the disinterested directors for 2001. No officer of the Funds received any compensation from the Funds in 2001. COMPENSATION TABLE
Compensation from Aggregate compensation Fund Complex, Director from Fund, per Director per Director* - -------- ----------------------- ------------- James C. George Common Stock Fund $2,416 $34,000 ------ Growth Fund $4,944 International Stock Fund $ 499 Special Fund $2,860 Small Cap Fund $1,615 Real Estate Fund $1,545 Balanced Fund $3,347 Columbia Daily Income Company $3,971 Short Term Bond Fund $ 138 Fixed Income Securities Fund $1,351 Oregon Municipal Bond Fund $1,512 High Yield Fund $ 537 National Municipal Bond Fund $ 37 Strategic Value Fund $ 197 Technology Fund $ 31 Patrick J. Simpson Common Stock Fund $2,416 $34,000 ------ Growth Fund $4,944 International Stock Fund $ 499 Special Fund $2,860 Small Cap Fund $1,615 Real Estate Fund $1,545 Balanced Fund $3,347 Columbia Daily Income Company $3,971 Short Term Bond Fund $ 138 Fixed Income Securities Fund $1,351 Oregon Municipal Bond Fund $1,512 High Yield Fund $ 537
41 National Municipal Bond Fund $ 37 Strategic Value Fund $ 197 Technology Fund $ 31 Richard L. Woolworth** Common Stock Fund $2,513 $35,000 ------ Growth Fund $5,142 International Stock Fund $ 519 Special Fund $2,974 Small Cap Fund $1,679 Real Estate Fund $1,607 Balanced Fund $3,481 Columbia Daily Income Company $4,130 Short Term Bond Fund $ 144 Fixed Income Securities Fund $1,405 Oregon Municipal Bond Fund $1,572 High Yield Fund $ 558 National Municipal Bond Fund $ 39 Strategic Value Fund $ 205 Technology Fund $ 32
- ---------- * Includes compensation Messrs. Woolworth, George and Simpson received as Trustees of CMC Fund Trust. The Investment Adviser for CMC Fund Trust is Columbia Management Co., an affiliate of the Adviser. ** Includes compensation received by Mr. Woolworth for serving on each Fund's and CMC Fund Trust's Executive Committee. PFPC Distributors, Inc. ("PFPC"), a registered securities broker and a member of the National Association of Securities Dealers, Inc., is the principal underwriter for the Funds, and is authorized under a distribution agreement with each Fund to sell shares of the Fund. Columbia Financial has entered into a broker-dealer agreement with PFPC to distribute the Funds' shares. PFPC and Columbia Financial do not charge any fees or commissions to investors or the Funds for the sale of shares of a Fund. At January 31, 2002, officers and directors, as a group, owned of record or beneficially less than 1% of each Fund, other than for the following funds: Technology Fund 56,761 shares 2.81% National Municipal Bond Fund 25,340 shares 1.79% 42 At January 31, 2002, to the knowledge of the Funds, no person owned of record or beneficially more than 5% of the outstanding shares of any Fund except the following record owners:
Shares Owned of Record Name and Address At January 31, 2002 - ---------------- ------------------- COLUMBIA COMMON STOCK FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 4,759,008 (14.04%) Wells Fargo Bank Minnesota FBO Mentor Graphics 401 (k) Plan P.O. Box 1533 Minneapolis, Minnesota 55480 1,884,258 (5.56%) COLUMBIA BALANCED FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 8,721,343 (18.78%) COLUMBIA GROWTH FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 5,452,258 (13.01%) COLUMBIA SPECIAL FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 5,298,696 (13.25%) Standard Insurance Company P.O. Box 711 Portland, Oregon 97207 3,308,925 (8.27%)
43
Shares Owned of Record Name and Address At January 31, 2002 - ---------------- ------------------- COLUMBIA SMALL CAP FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 14,551,042 (48.42%) Intermountain Health Care 401 (k) P.O. Box 92956 Chicago, Illinois 60675 1,547,620 (5.15%) COLUMBIA REAL ESTATE EQUITY FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 26,377,038 (74.04%) COLUMBIA INTERNATIONAL STOCK FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 844,223 (7.53%) COLUMBIA TECHNOLOGY FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 116,696 (5.78%) COLUMBIA STRATEGIC VALUE FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 6,045,988 (39.53%) National Investors Services Corp. 55 Water Street, 32nd Floor New York, New York 10041 873,318 (5.71%)
44
Shares Owned of Record Name and Address At January 31, 2002 - ---------------- ------------------- COLUMBIA FIXED INCOME SECURITIES FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 9,213,871 (26.47%) COLUMBIA HIGH YIELD FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 22,099,145 (67.69%) National Investors Services Corp. 55 Water Street, 32nd Floor New York, New York 10041 1,706,918 (5.23%) COLUMBIA OREGON MUNICIPAL BOND FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 3,418,298 (8.54%) COLUMBIA NATIONAL MUNICIPAL BOND FUND Lita Luvera P.O. Box 1350 Portland, Oregon 97207 158,057 (11.22%) The Agnew Family Trust P.O. Box 1350 Portland, Oregon 97207 114,243 (8.11%) Douglas Norberg P.O. Box 1350 Portland, Oregon 97207 105,128 (7.46%) Tacoma Screw Products, Inc. P.O. Box 1350 Portland, Oregon 97207 104,851 (7.44%) Gunilla Finrow P.O. Box 1350 Portland, Oregon 97207 86,768 (6.16%)
As defined by SEC rules and regulations, PFPC Global Fund Services is a "control person" of the Fixed Income Securities Fund, Real Estate Equity Fund, High Yield Fund, Small Cap Fund and Strategic Value Fund since it owns over 25% of the voting securities of each Fund. PFPC Global Fund Services acts as sub-transfer agent and processes all trades entered by financial intermediaries through the National Securities Corporation ("NSCC") for the Funds. Therefore, it does not exercise voting control over the securities it holds in the Funds. INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES The investment adviser to each of the Funds is Columbia Funds Management Company (the "Adviser"). The Adviser has entered into an investment contract with each Fund. Pursuant to the investment contract, the Adviser provides research, advice, and supervision with respect to investment matters and determines which securities to purchase or sell and what portion of the Fund's assets to invest. 45 The Adviser provides office space and pays all executive salaries and executive expenses of the Fund. The Fund assumes its costs relating to corporate matters, cost of services to shareholders, transfer and dividend paying agent fees, custodian fees, legal and auditing expenses, disinterested director fees, taxes and governmental fees, interest, brokers' commissions, transaction expenses, cost of stock certificates and any other expenses (including clerical expenses) of issue, sale, repurchase, or redemption of its shares, expenses of registering or qualifying its shares for sale, transfer taxes, and all other expenses of preparing its registration statement, prospectuses, and reports. Information regarding calculation of the advisory fee payable to the Adviser is set forth in the Prospectus. Advisory fees paid by each of the Funds for each of the last three years were:
FUND 2001 2000 1999 - ---- ---- ---- ---- Common Stock Fund $4,439,013 $ 5,844,592 $ 5,181,352 Growth Fund $8,377,937 $12,038,582 $10,562,644 International Stock Fund $1,534,669 $ 2,197,202 $ 1,592,405 Special Fund $7,790,604 $ 9,717,028 $ 7,081,977 Small Cap Fund $5,137,830 $ 4,514,814 $ 1,745,238 Real Estate Fund $3,752,707 $ 2,527,697 $ 1,549,192 Technology Fund* $ 103,027 $ 4,427 -- Strategic Value Fund* $ 543,893 $ 5,281 -- Balanced Fund $5,191,548 $ 5,393,886 $ 5,094,253 Short Term Bond Fund $ 227,831 $ 177,533 $ 194,635 Fixed Income Securities Fund $2,158,251 $ 1,886,459 $ 2,105,357 National Municipal Bond Fund $ 59,637 $ 54,029 $ 27,095 Oregon Municipal Bond Fund $2,395,099 $ 2,073,536 $ 2,246,866 High Yield Fund $1,089,470 $ 463,725 $ 405,284 Columbia Daily Income Company $5,765,043 $ 5,482,957 $ 5,232,688
- ---------- * These Funds commenced operations on November 9, 2000. 46 A portion of the Adviser's fees are used to pay financial intermediaries for services they provide to investors who invest in the Funds through such financial intermediary. In 2001, the Adviser paid financial intermediaries the following amounts:
FUND 2001 - ---- ---- Common Stock Fund $172,066 Growth Fund $220,467 International Stock Fund $ 12,657 Special Fund $196,990 Small Cap Fund $276,892 Real Estate Fund $586,933 Technology Fund $ 13,764 Strategic Value Fund $ 26,356 Balanced Fund $346,180 Short Term Bond Fund $ 579 Fixed Income Securities Fund $114,716 National Municipal Bond Fund $ 3 Oregon Municipal Bond Fund $ 39,912 High Yield Fund $176,010 Columbia Daily Income Company $ 597
The Adviser has entered into an agreement with Columbia Management Co. ("CMC"), under which CMC provides the Adviser with statistical and other factual information, advice regarding economic factors and trends, and advice as to occasional transactions in specific securities. CMC, upon receipt of specific instructions from the Adviser, also contacts brokerage firms to conduct securities transactions for the Funds. The Adviser pays CMC a fee for these services. A Fund's expenses are not increased by this arrangement, and no amounts are paid by a Fund to CMC under this agreement. The transfer agent and dividend crediting agent for the Funds is Columbia Trust Company ("Trust Company"). Its address is 1301 S.W. Fifth Avenue, P.O. Box 1350, Portland, Oregon 97207. It issues certificates for shares of the Funds, if requested, and records and disburses dividends for the Funds. During 2001, each Fund paid the Trust Company a per account fee of $1.66 per month for each shareholder account with the Fund existing at any time during the month. In addition, each Fund pays the Trust Company for extra administrative services performed at cost in accordance with a schedule set forth in the agreement between the Trust Company and the Fund and reimburses the Trust Company for certain out-of-pocket expenses incurred in carrying out its duties under that agreement. In addition to the transfer agent services described above, the Trust Company has hired PFPC Global Fund Services as a sub-transfer agent to provide services related to fund transactions processed through the National Securities Clearing Corporation on behalf of the Common Stock Fund, Growth Fund, Special Fund, Real Estate Fund, Small Cap Fund, Balanced Fund, High Yield Fund and Fixed Income Securities Fund. Each of the above Funds has agreed to pay to the Trust Company the costs incurred by Trust Company in connection with the services provided by PFPC. 47 Fees paid to the Trust Company for services performed in 2001 under each transfer agent agreement were $892,031 for the Common Stock Fund, $1,535,835 for the Growth Fund, $532,797 for the International Stock Fund, $933,186 for the Special Fund, $535,541 for the Small Cap Fund, $245,986 for the Real Estate Fund, $71,999 for the Technology Fund, $110,672 for the Strategic Value Fund, $955,009 for the Balanced Fund, $109,880 for the Short Term Bond Fund, $386,119 for the Fixed Income Securities Fund, $154,359 for the Oregon Municipal Bond Fund, $137,152 for the High Yield Fund, $1,088,917 for the Columbia Daily Income Company and $42,067 for the Columbia National Municipal Bond Fund. The Adviser, the Trust Company and CMC are indirect wholly owned subsidiaries of FleetBoston Financial Corporation ("Fleet"). Fleet and its affiliates provide a wide range of banking, financial, and investment products and services to individuals and businesses. Their principal activities include customer and commercial banking, mortgage lending and servicing, trust administration, investment management, retirement plan services, brokerage and clearing services, securities underwriting, private and corporate financing and advisory activities, and insurance services. PORTFOLIO TRANSACTIONS Each Fund, other than the Strategic Value Fund, will not generally invest in securities for short-term capital appreciation but, when business and economic conditions, market prices, or the Fund's investment policy warrant, individual security positions may be sold without regard to the length of time they have been held. This may result in a higher portfolio turnover rate and increase a Fund's transaction costs, including brokerage commissions. To the extent short-term trades result in gains on securities held less than one year, shareholders will be subject to taxes at ordinary income rates. See "TAXES" in this Statement of Additional Information. The Funds may purchase their portfolio securities through a securities broker and pay the broker a commission, or they may purchase the securities directly from a dealer which acts as principal and sells securities directly for its own account without charging a commission. The purchase price of securities purchased from dealers serving as market makers will include the spread between the bid and asked prices. The Funds may also purchase securities from underwriters, the price of which will include a commission or discount paid by the issuer to the underwriter. There is generally no stated commission in the case of fixed income securities that are traded in the over-the-counter market, but the price paid by a Fund usually includes an undisclosed dealer commission or mark-up. Prompt execution of orders at the most favorable price will be the primary consideration of the Funds in transactions where fees or commissions are involved. Additional factors considered by the Adviser in selecting brokers to execute a transaction include the: (i) professional capability of the executing broker and the value and quality of the brokerage services provided; (ii) size and type of transaction; (iii) timing of transaction in the context of market prices and trends; (iv) nature and character of markets for the security to be purchased or sold; (v) the broker's execution efficiency and settlement capability; (vi) the broker's experience and financial stability and the execution services it renders to the Adviser on a continuing basis; and (vii) reasonableness of commission. Research, statistical, and other services offered by the broker also may be taken into consideration in selecting broker-dealers. These services may include: advice concerning the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or the purchasers or sellers of securities; and furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategies, and performance of accounts. A commission in excess of the amount of a commission another broker or dealer would have charged for effecting a transaction may be paid by a Fund if the Adviser determines in good faith that the commission is reasonable in relation to the value of the brokerage and research services provided, viewed in terms of either that particular transaction or management's overall responsibilities with respect to the Fund. The Adviser receives a significant amount of proprietary research from a number of brokerage firms, in most cases on an unsolicited basis. The Adviser does not make any commitments to allocate brokerage for proprietary research. The value of that research, however, is considered along with other factors in the selection of brokers. This research is considered supplemental to the Adviser's own internal research and does not, therefore, materially reduce the overall expenses incurred by the Adviser for its research. On a semi-annual basis, the Adviser's research analysts and portfolio managers participate in a detailed internal survey regarding the value of proprietary research and the skills or contributions made by the various brokerage analysts to the Adviser's 48 investment process. Firms are then confidentially ranked based on that survey. Brokerage allocations are then made, as much as reasonably possible, based on those rankings. In limited circumstances, the Adviser may use a Fund's commissions to acquire third party research or products that are not available through its full-service brokers. In these arrangements, the Adviser pays an executing broker a commission equal to the average rate paid on all other trades and achieves what it believes is best execution on the trade. The executing broker then uses a portion of the commission to pay for a specific research service or product provided to the Adviser. Proposed research to be acquired in this manner must be approved by the Adviser's Chief Investment Officer, who is responsible for determining that the research provides appropriate assistance to the Adviser in connection with its investment management of the Funds and that the price paid with broker commissions is fair and reasonable. The receipt of proprietary and third party research services or products from brokers or dealers might be useful to the Adviser and its affiliates in rendering investment management services to the Funds or other clients. Conversely, research provided by brokers or dealers who have executed orders on behalf of other clients of the Adviser and its affiliates might be useful to the Adviser in carrying out its obligations to a Fund. Total brokerage commissions paid by each of the respective Funds for each of the last three years were:
FUND 2001 2000 1999 - ---- ---- ---- ---- Common Stock Fund $2,029,948 $1,702,381 $1,569,579 Growth Fund $3,889,565 $3,469,603 $4,155,391 International Stock $ 956,873 $1,085,143 $ 724,858 Fund Special Fund $3,049,564 $2,539,187 $2,633,780 Small Cap Fund $1,012,547 $ 802,568 $ 421,852 Real Estate Fund $ 982,759 $ 638,603 $ 491,959 Balanced Fund $1,663,848 $1,087,755 $1,013,023 Technology Fund* $ 55,309 $ 2,313 -- Strategic Value Fund* $ 917,625 $ 25,633 --
- ---------- * These Funds commenced operations November 9, 2000. No brokerage commissions were paid by the Columbia Daily Income Company, the Short Term Bond Fund, the Fixed Income Securities Fund, the Oregon Municipal Bond Fund, the Columbia National Municipal Bond Fund, or the High Yield Fund during the last three years. Of the commissions paid in 2001, the Common Stock Fund paid $330,464, the Growth Fund paid $482,759, the Special Fund paid $332,833, the Small Cap Fund paid $184,206, the Balanced Fund paid $271,910, the Real Estate Fund paid $46,790, the Strategic Value Fund paid $129,598 and the Technology Fund paid $10,597 to acquire third-party research or products. Provided each Fund's Board of Directors is satisfied that the Fund is receiving the most favorable price and execution available, the Adviser may consider the sale of the Fund's shares as a factor in the selection of brokerage firms to execute its portfolio transactions. The placement of portfolio transactions with brokerage firms who sell shares of a Fund is subject to rules adopted by the National Association of Securities Dealers. The Adviser may use research services provided by and allocate purchase and sale orders for portfolio securities to certain financial institutions, including, to the extent permitted by law or order of the SEC, financial institutions that are affiliated with the Adviser, if the Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified brokerage firms. On October 1, 1999, Robertson, Stephens became an affiliated broker dealer of the Adviser. During calendar years 2000 and 2001, the Fund periodically used Robertson Stephens to execute purchase and sale orders. The aggregate dollar amount of brokerage commissions paid to Robertson Stephens for the years 2000 and 2001 are as follows:
2001 2000 ---- ---- Small Cap Fund $ 300 $20,364 Balanced Fund $ 6,300 $ 1,200 Special Fund $ 7,312 $64,806 Growth Fund $28,880 $37,290 Real Estate Equity Fund $15,612 $ 8,658 Strategic Value Fund $ 2,400 --
For both years, the aggregate dollar amount of purchase and sale transactions and total broker commissions were less than 1% of each Fund's total purchase and sale transactions and broker commissions. In addition to agency transactions, the Funds may purchase securities from an underwriting syndicate in which an affiliate is a member of the underwriting syndicate. Such trades will be executed in accordance with the rules and regulations of the 1940 Act, as well as procedures adopted by the Funds. Buy and sell orders of a Fund may be aggregated by the Adviser with those of other Funds or accounts or other investment pools managed by the Adviser or affiliates of the Adviser to achieve best execution, and, on the average, lower brokerage commission costs. Orders are aggregated only if the Adviser, in the exercise of its 49 investment discretion, believes such aggregation is consistent with its duty to seek best execution and if each client involved in the order is treated fairly and on an equitable basis. Each client that participates in an aggregated order will participate at the average share price for all transactions in that order, with all transaction costs shared on a pro rata basis. Absent unusual circumstances, an aggregated order that is only partially completed by the Adviser will be allocated to each client on a pro rata basis based on the percentage of the combined order actually filled. Notwithstanding the above, the Adviser may execute buy and sell orders for clients and take action in performance of its duties with respect to any of its clients that may differ from actions taken with respect to another client with similar investment policies and objectives, so long as the Adviser shall, to the extent practical, allocate investment opportunities to clients over a period of time on a fair and equitable basis and in accordance with applicable law. Allocations among Columbia accounts to participate in initial public offerings ("IPOs") are made pursuant to IPO Allocation Priority Guidelines (the "Guidelines") established by the Columbia Investment Team. The Guidelines establish which accounts are eligible to participate in a particular IPO and what level of participation is permitted. Eligibility is based upon the market capitalization of the IPO and the capitalization focus of the account. After eligible accounts are identified, each manager receives, on behalf of his or her accounts, a pro rata share of such allocation. The allocation by the manager among his or her accounts is further divided among such accounts on a pro rata basis. A manager may decline to participate in an offering, or may elect to not have all accounts participate, even if his or her accounts are eligible to participate pursuant to the guidelines if he or she believes that the IPO is not appropriate for his or her accounts or an individual account. A manager who declines to participate, must document the basis of his or her decision not to participate. Over time, allocations to eligible accounts, for which an IPO opportunity is appropriate, will be made on a fair and equitable basis. The Adviser and the Funds maintain a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act (the "Ethics Code") that sets forth general and specific standards relating to the securities trading activities of all their employees. The Ethics Code does not prohibit employees from purchasing securities that may be purchased or held by the Funds, but is intended to ensure that all employees conduct their personal transactions in a manner that does not interfere with the portfolio transactions of the Funds or the Adviser's other clients or take unfair advantage of their relationship with the Adviser. The specific standards in the Ethics Code include, among others, a requirement that trades of all access persons be pre-cleared; a prohibition on investing in initial public offerings; required pre-approval of an investment in private placements; a prohibition on portfolio managers trading in a security seven days before or after a trade in the same security by an account over which the manager exercises investment discretion; and a prohibition on realizing any profit on the trading of a security held less than 60 days. Certain securities and transactions, such as mutual fund shares or U.S. Treasuries and purchases of options on securities indexes or securities under an automatic dividend reinvestment plan, are exempt from the restrictions in the Ethics Code because they present little or no potential for abuse. Certain transactions involving the stocks of large capitalization companies are exempt from the seven day black-out period and short-term trading prohibitions because such transactions are highly unlikely to affect the price of these stocks. In addition to the trading restrictions, the Ethics Code contains reporting obligations that are designed to ensure compliance and allow the Adviser's Ethics Committee to monitor that compliance. The Adviser and the Funds have also adopted a Policy and Procedures Designed to Detect and Prevent Insider Trading (the "Insider Trading Policy"). The Insider Trading Policy prohibits any employee from trading, either personally or on behalf of others (including a client account), on the basis of material nonpublic information. All employees are required to certify each year that they have read and complied with the provisions of the Ethics Code and the Insider Trading Policy. CAPITAL STOCK AND OTHER SECURITIES Each Fund is an Oregon corporation and was organized in the year set forth below opposite its name.
FUND DATE ---- ---- Common Stock Fund 1991 Growth Fund 1967 International Stock Fund 1992 Special Fund 1985 Small Cap Fund 1996 Real Estate Fund 1994 Technology Fund 2000 Strategic Value Fund 2000 Balanced Fund 1991 Short Term Bond Fund 1986 Fixed Income Securities Fund 1983 National Municipal Bond Fund 1999 Oregon Municipal Bond Fund 1984 High Yield Fund 1993 Columbia Daily Income Company 1974
50 All shares of each Fund have equal voting, redemption, dividend, and liquidation rights. All issued and outstanding shares of a Fund are fully paid and nonassessable. Shares have no preemptive or conversion rights. Fractional shares have the same rights proportionately as full shares. The shares of a Fund do not have cumulative voting rights, which means that the holders of more than 50 percent of the shares of the Fund, voting for the election of directors, can elect all the directors. Any reference to the phrase "vote of a majority of the outstanding voting securities of the Fund" means the vote at any meeting of shareholders of a Fund of (i) 67 percent or more of the shares present or represented by proxy at the meeting, if the holders of more than 50 percent of the outstanding shares are present or represented by proxy, or (ii) more than 50 percent of the outstanding shares, whichever is less. PURCHASE, REDEMPTION AND PRICING OF SHARES PURCHASES AND REDEMPTIONS A detailed discussion of how you may purchase, redeem and exchange shares in each of the Funds is discussed in the Prospectus. The following information and polices is supplemental to that found in the Prospectus. Investment Minimums. Although the Adviser has established minimum investment amounts, it may, at its sole discretion, waive the minimum purchase and account size requirements for certain group plans or accounts opened by agents or fiduciaries (such as a bank trust department, investment adviser, or securities broker), for individual retirement plans or in other circumstances. Telephone Redemptions. You may experience some difficulty in implementing a telephone redemption during periods of intense economic or financial market changes or activity. Telephone redemption privileges may be modified or terminated at any time without notice to shareholders. Redemptions by Draft. The processing of drafts against a Columbia Daily Income Company account is subject to the rules and regulations of the Columbia Daily Income Company's commercial bank. These arrangements do not establish a checking or other account between you and the bank for the purpose of Federal Deposits Insurance or otherwise. The agreements and procedures followed by the Columbia Daily Income Company relates solely to the bank's intermediary status for redemption of investments in the Columbia Daily Income Company. Automatic Withdrawals. If your account value in any Fund is $5,000 or more, you may elect to receive automatic cash withdrawals of $50 or more from that Fund in accordance with either of the following withdrawal options: Income earned - you may elect to receive any dividends or capital gains distributions on your shares, provided such dividends and distributions exceed $25. Fixed Amount - you may elect to receive a monthly or quarterly fixed amount of $50 or more. Automatic withdrawals will be made within seven days after the end of the month or quarter to which they related. To the extent redemptions for automatic withdrawals exceed dividends declared on shares in your account, the number of shares in your account will be reduced. If the value of your account falls below the Fund minimum, your account is subject to be closed on 60 days written notice. The minimum withdrawal amount has been established for administrative convenience and should not be considered as recommended for all investors. For tax reporting, a capital gain or loss may be realized on each fixed-amount withdrawal. An automatic withdrawal plan may be modified or terminated at any time upon prior notice by the Fund or the shareholder. Redemption of Recently Purchased Shares. If a Fund has not yet collected payment for the shares you are selling, it may delay sending the proceeds until it has collected payment, which may take up to 15 days from the purchase date. No interest is paid on the redemption proceeds after the redemption date and before the proceeds are sent to you. If you request the redemption (by draft 51 or other means) of Columbia Daily Income Company shares recently purchased by check, the proceeds will not be transmitted until the earlier to occur of your check clearing or 15 days from the purchase date. These holding periods do not apply to the redemption of shares purchased by bank wire or with a cashiers or certified check. There is no charge for redemption payments that are mailed. Amounts transferred by wire must be at least $1,000, and the bank wire cost for each redemption will be charged against your account. Your bank may also impose an incoming wire charge. Exchanges. You may use proceeds from the redemption of shares of any Fund to purchase share of other Funds offering shares for sale in your state of residence. Before making an exchange, you should read the portions of the Prospectus relating to the Fund or Funds into which the shares are to be exchanged. The shares of the Fund to be acquired will be purchased at the net asset value next determined after acceptance of the purchase order by that Fund in accordance with its policy for accepting investments. The exchange of shares of one Fund for shares of another Fund is treated, for federal income tax purposes, as a sale on which you may realize a taxable gain or loss. Telephone exchange privileges are available to you automatically, unless you decline this service by checking the appropriate box on the application. Telephone exchanges may be made from one Fund into another Fund only within the same account number. To prevent the abuse of the exchange privilege to the disadvantage of other shareholders, each Fund reserves the right to terminate the exchange privilege of any shareholder who makes more than four exchanges out of a Fund during the calendar year. The exchange privilege may be modified or terminated at any time, and any Fund may discontinue offering its shares generally or in any particular state without notice to shareholders. Involuntary Redemptions. Upon 60 days prior written notice, a Fund may redeem all of your shares without your consent if: - Your account balance falls below $500. However, if you wish to maintain that account, you may during the 60-day notice period either: (i) add to your account to bring it up to the required minimum, or (ii) establish an Automatic Investment Plan with a minimum monthly investment of $50. - You are a U.S. shareholder and fail to provide the Fund with a certified taxpayer identification number. - You are a foreign shareholder and fail to provide the Fund with a current Form W-8, "Certificate of Foreign Status." The Funds also reserve the right to close a shareholder account if the shareholder's actions are deemed to be detrimental to the Fund or its shareholders, including, without limitation, violating the exchange policy set forth in its Prospectus. If a Fund redeems shares, payment will be made promptly at the current net asset value. A redemption may result in a realized capital gain or loss. Processing Your Orders. Orders received by a Fund other than the Columbia Daily Income Company will be processed the day they are received. Since the Columbia Daily Income Company invests in obligations normally requiring payment in federal funds, purchase orders will not be processed unless received in federal funds or until converted by the Fund into federal funds. Checks or negotiable U.S. bank drafts require one day to convert into federal funds. Checks drawn on banks that are not members of the Federal Reserve System may take longer to convert into federal funds. Prior to conversion into federal funds, your money will not be invested or working for you. Information about federal funds is available from any U.S. bank that is a member of the Federal Reserve System. Orders received before the close of regular trading on the NYSE (normally 4:00 p.m. New York time) will be entered at the Fund's share price computed that day. Orders received after the close of regular trading on the NYSE will be entered at the Fund's share price next determined. All investments will be credited to your account in full and fractional shares computed to the third decimal place. The Funds reserve the right to reject any order. Shares purchased will be credited to your account on the record books of the applicable Fund. The Funds will not issue share certificates except on request. Certificates for fractional shares will not be issued. Redemptions. Each Fund reserves the right to redeem Fund shares in cash or by payment-in-kind. Each Fund has elected, however, to be governed by Rule 18f-1 under the 1940 Act pursuant to 52 which a Fund is obligated to redeem, during any 90-day period, shares of a shareholder solely for cash up to the lesser of $250,000 or 1 percent of the net asset value of the Fund. A shareholder who is redeemed in kind may incur brokerage fees upon the sale of any securities distributed upon redemption. PRICING OF SHARES The net asset value ("NAV") per share of each Fund is determined by the Adviser, under procedures approved by the directors, as of the close of regular trading (normally 4:00 p.m. New York time) on each day the NYSE is open for business and at other times determined by the directors. The NAV per share is computed by dividing the value of all assets of the Fund, less its liabilities, by the number of shares outstanding. A Fund may suspend the determination of the NAV of a Fund and the right of redemption for any period (1) when the NYSE is closed, other than customary weekend and holiday closings, (2) when trading on the NYSE is restricted, (3) when an emergency exists as a result of which sale of securities owned by the Fund is not reasonably practicable or it is not reasonably practicable for the Fund to determine the value of the Fund's assets, or (4) as the SEC may by order permit for the protection of security holders, provided the Fund complies with rules and regulations of the SEC, which govern as to whether the conditions prescribed in (2) or (3) exist. The NYSE observes the following holidays: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. For purposes of calculating the NAV of a Fund's shares, the following procedures are utilized whenever applicable. Each Fund's equity securities are valued at the last sale price on the securities exchange or national securities markets at which such securities primarily are traded. Securities not listed on an exchange or national securities market, or securities in which there were no transactions, are valued using the last bid price. Each Fund purchasing debt securities uses market value to value such securities as quoted by an independent pricing service, dealers who are market makers in the securities or by procedures and guidelines approved by the Funds' Board of Directors. Market values are generally based on the average of bid and ask prices, or by reference to other securities with comparable ratings, interest rates and maturities. Certain debt securities for which daily market quotations are not readily available, or for which the Adviser believes the quotations do not accurately value the security in question, may be fair valued by the Adviser, pursuant to guidelines established by the Funds' Board of Directors. Investments in the Columbia Daily Income Company and other temporary cash investments are carried at values deemed best to reflect their fair values as determined in good faith by the Adviser, under procedures adopted by the Funds' Board of Directors. These values are based on cost, adjusted for amortization of discount or premium and accrued interest, unless unusual circumstances indicate that another method of determining fair value should be used. The value of assets or liabilities initially expressed in a foreign currency will, on a daily basis, be converted into U.S. dollars. Foreign securities will be valued based upon the most recent closing price on their principal exchange, or based upon the most recent price obtained by the Fund, if the security is not priced on an exchange, even if the close of that exchange or price determination is earlier than the time of the Funds' NAV calculation. In the case of such foreign security, if an event that is likely to affect materially the value of a portfolio security occurs between the time the foreign price is determined and the time the Fund's NAV is calculated, it may be necessary to value the security in light of that event. CUSTODIANS U S Bank N.A. (a "Custodian"), 321 S.W. Sixth Avenue, Portland, Oregon 97208, acts as general custodian for each Fund, except the International Stock Fund. The Custodian provides custody services to the International Stock Fund with respect to domestic securities held by the Fund. J.P. Morgan Chase & Co. ("J.P. Morgan" or a "Custodian"), 4 Chase MetroTech Center, 18th Floor, Brooklyn, New York 11245, acts as the general custodian for the International Stock Fund and provides custody services to those Funds that invest in foreign securities. The Custodians hold all securities and cash of the Funds, receive and pay for securities purchased, deliver against payment securities sold, receive and collect income from investments, make all payments covering expenses of the Funds, and perform other administrative duties, all as directed by authorized officers of the Adviser. The Custodians do not exercise any supervisory function in the purchase and sale of portfolio securities or payment of dividends. Portfolio securities purchased in the United States are maintained in the custody of the Fund's custodian. Portfolio securities purchased outside the United States by the Funds are maintained in the custody of foreign banks, trust companies, or depositories that have sub-custodian arrangements with J.P. Morgan (the "foreign sub-custodians"). Each of the domestic and foreign custodial institutions that may hold portfolio securities of the Funds has been approved by the Board of Directors of the Funds or, in the case of foreign securities, at the discretion of the Board of Directors, by J.P. Morgan, as a delegate of the Board of Directors, all in accordance with regulations under the 1940 Act. 53 The Adviser determines whether it is in the best interest of the Funds and their shareholders to maintain a Fund's assets in each of the countries in which the Fund invests ("Prevailing Market Risk"). The review of Prevailing Market Risk includes an assessment of the risk of holding a Fund's assets in a country, including risks of expropriation or imposition of exchange controls. In evaluating the foreign sub-custodians, the Board of Directors, or its delegate, will review the operational capability and reliability of the foreign sub-custodian. With respect to foreign investments and the selection of foreign sub-custodians, however, there is no assurance that the Funds, and the value of their shares, will not be adversely affected by acts of foreign governments, financial or operational difficulties of the foreign sub-custodians, difficulties and cost of obtaining jurisdiction over, or enforcing judgements against, the foreign sub-custodians, or the application of foreign law to a Fund's foreign sub-custodial arrangement. Accordingly, an investor should recognize that the risks involved in holding assets abroad are greater than those associated with investing in the United States. ACCOUNTING SERVICES AND FINANCIAL STATEMENTS The financial statements of each Fund for the year ended December 31, 2001, the selected per share data and ratios under the caption "Financial Highlights," and the report of PricewaterhouseCoopers LLP, independent accountants, are included in the 2001 Annual Report to Shareholders of the Funds. PricewaterhouseCoopers LLP, 1300 S.W. Fifth Avenue, Suite 3100, Portland, Oregon 97201, in addition to examining the financial statements of the Funds, assists in the preparation of the tax returns of the Funds and in certain other matters. TAXES FEDERAL INCOME TAXES Each Fund intends and expects to meet continuously the tests for qualification as a regulated investment company under Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Each Fund believes it satisfies the tests to qualify as a regulated investment company. To qualify as a regulated investment company for any taxable year, each Fund must, among other things: (a) derive at least 90 percent 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 (the "90 Percent Test"); and (b) diversify its holdings so that, at the end of each quarter, (i) 50 percent or more of the value of the assets of the Fund is represented by cash, government securities, and other securities limited, in respect of any one issuer of such other securities, to an amount not greater than 5 percent of the value of the assets of the Fund and 10 percent of the outstanding voting securities of such issuer, and (ii) not more than 25 percent of the value of the assets of the Fund is invested in the securities (other than government securities) of any one issuer or of two or more issuers that the Fund "controls" within the meaning of Section 851 of the Code and that meet certain requirements (the "Diversification Test"). In addition, a Fund must file, or have filed, a proper election with the Internal Revenue Service. Part I of Subchapter M of the Code will apply to a Fund during a taxable year only if it meets certain additional requirements. Among other things, the Fund must: (a) have a deduction for dividends paid (without regard to capital gain dividends) at least equal to the sum of 90 percent of its investment company taxable income (computed without any deduction for dividends paid) and 90 percent of its tax-exempt interest in excess of certain disallowed deductions (unless the Internal Revenue Service waives this requirement), and (b) either (i) have been subject to Part I of Subchapter M for all taxable years ending after November 8, 1983 or (ii) as of the close of the taxable year have no earnings and profits accumulated in any taxable year to which Part I of Subchapter M did not apply. A regulated investment company that meets the requirements described above is taxed only on its "investment company taxable income," which generally equals the undistributed portion of its ordinary net income and any excess of net short-term capital gain over net long-term capital loss. In addition, any excess of net long-term capital gain over net short-term capital loss that is not distributed is taxed to a Fund at corporate capital gain tax rates. The policy of each Fund is to apply capital loss carry-forwards as a deduction against future capital gains before making a capital gain distribution to shareholders. Under rules that are beyond the scope of this discussion, certain capital losses and certain net foreign currency losses resulting from transactions occurring in November and December of a taxable year may be taken into account either in that taxable year or in the following taxable year. 54 If any net long-term capital gains in excess of net short-term capital losses are retained by a Fund, requiring federal income taxes to be paid thereon by the Fund, the Fund may elect to treat such capital gains as having been distributed to shareholders. In the case of such an election, shareholders will be taxed on such amounts as long-term capital gains, will be able to claim their proportional share of the federal income taxes paid by the Fund on such gains as credits against their own federal income tax liabilities, and generally will be entitled to increase the adjusted tax basis of their shares in the Fund by the differences between their pro rata shares of such gains and their tax credits. SPECIAL ASPECTS OF 90 PERCENT TEST WITH RESPECT TO FOREIGN CURRENCY. For purposes of the 90 Percent Test, foreign currency gains that are not directly related to a Fund's principal business of investing in stocks or securities (or options and futures with respect to stock or securities) may be excluded from qualifying income by regulation. No such regulations, however, have been issued. Unless an exception applies, a Fund may be required to recognize some income with respect to foreign currency contracts under the mark-to-market rules of Section 1256 even though that income is not realized. Special rules under Sections 1256 and 988 of the Code determine the character of any income, gain, or loss on foreign currency contracts. Two possible exceptions to marking-to-market relate to hedging transactions and mixed straddles. A hedging transaction is defined for purposes of Section 1256 as a transaction (1) that a Fund properly identifies as a hedging transaction, and (2) that is entered into in the normal course of business primarily to manage the risk of price changes or currency fluctuations with respect to the Fund's investments. A mixed straddle is a straddle where (1) at least one (but not all) of the straddle positions are Section 1256 contracts and (2) the Fund properly identifies each position forming part of the straddle. A straddle for these purposes generally is offsetting positions with respect to personal property. A Fund holds offsetting positions generally if there is a substantial diminution of the Fund's risk of loss from holding a position by reason of its holding one or more other positions. OREGON MUNICIPAL BOND FUND AND NATIONAL MUNICIPAL BOND FUND. In certain cases, Subchapter M permits the character of tax-exempt interest received and distributed by a regulated investment company to flow through for federal tax purposes as tax-exempt interest to its shareholders, provided that 50 percent or more of the value of its assets at the end of each quarter is invested in municipal bonds. For purposes of this Statement of Additional Information, the term "municipal bonds" refers to obligations that pay interest that is tax-exempt under Section 103 of the Code. For purposes of this Statement of Additional Information, the term "tax-exempt interest" refers to interest that is not includable in gross income for federal income tax purposes. As discussed below, however, tax-exempt interest may result in an increase in the taxes of the recipient because of the alternative minimum tax, the environmental tax, the branch profits tax, or under other provisions of the Code that are beyond the scope of this Statement of Additional Information. The Oregon Municipal Bond Fund and the National Municipal Bond Fund intend to have at least 50 percent of the value of their total assets at the close of each quarter of their taxable year consist of obligations the interest on which is not includable in gross income for federal income tax purposes under Section 103 of the Code. As a result, the Oregon Municipal Bond Fund's and the National Municipal Bond Fund's dividends payable from net tax-exempt interest earned from municipal bonds should qualify as exempt-interest dividends. Distributions properly designated by the Oregon Municipal Bond Fund and the National Municipal Bond Fund as representing net tax-exempt interest received on municipal bonds (including municipal bonds of Guam, Puerto Rico, and certain other issuers) will not be includable by shareholders in gross income for federal income tax purposes (except for shareholders who are, or are related to, "substantial users," as discussed below). Distributions representing net taxable interest received by the Oregon Municipal Bond Fund and the National Municipal Bond Fund from sources other than municipal bonds, representing the excess of net short-term capital gain over net long-term capital loss, or representing taxable accrued market discount on the sale or redemption of municipal bonds, will be taxable to shareholders as ordinary income. Any loss realized upon the redemption of shares of the Oregon Municipal Bond Fund and the National Municipal Bond Fund six months or less from the date of purchase of the shares and following receipt of an exempt-interest dividend will be disallowed to the extent of such exempt-interest dividend. Section 852(b)(4) of the Code contains special rules on the computation of a shareholder's holding period for this purpose. Interest on indebtedness incurred or continued by shareholders to purchase or carry shares of the Oregon Municipal Bond Fund and the National Municipal Bond Fund will not be deductible for federal income tax purposes. Under rules issued by the Internal Revenue Service, the purchase of such shares may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of shares. Special rules that are beyond the scope of this Statement of Additional Information limit the deduction of interest paid by financial institutions. Investors with questions regarding these issues should consult their tax advisors. Dividends attributable to interest on certain private activity bonds issued after August 7, 1986 will be items of tax preference and must be included in alternative minimum taxable income for the purpose of determining liability, if any, for the 26-28 percent alternative minimum tax for individuals and the 20 percent alternative 55 minimum tax for corporations. Furthermore, the alternative minimum taxable income for corporations includes an adjustment equal to 75 percent of the excess of "adjusted current earnings" over the corporation's other federal alternative minimum taxable income (computed without regard to "adjusted current earnings" and without regard to any "alternative tax net operating loss"). See Section 56(g) of the Code. For the purpose of alternative minimum tax for corporations, all exempt-interest dividends, less any interest expense incurred to purchase or carry shares paying exempt interest dividends, must be taken into account as "adjusted current earnings." In addition, exempt-interest dividends paid to corporate investors may be subject to tax under the environmental tax, which applies at the rate of 0.12 percent on the excess of the "modified alternative minimum taxable income" of the corporation over $2 million. See Section 59A of the Code. In some cases, exempt-interest dividends paid by the Oregon Municipal Bond Fund and the National Municipal Bond Fund may indirectly affect the amount of Social Security benefits or railroad retirement benefits that are taxable income to an investor. See Section 86 of the Code. Certain foreign corporations may be subject to the "branch profits tax" under Section 884 of the Code. The receipt of dividends from the Oregon Municipal Bond Fund and the National Municipal Bond Fund may increase the liability of the foreign corporation under the branch profits tax, even if such dividends are generally tax-exempt. "Substantial users" (or persons related thereto) of facilities financed by certain governmental obligations are not allowed to exclude from gross income interest on such obligations. No investigation as to the substantial users of the facilities financed by bonds in the Oregon Municipal Bond Fund's and the National Municipal Bond Fund's portfolios will be made by the Oregon Municipal Bond Fund and the National Municipal Bond Fund. Potential investors who may be, or may be related to, substantial users of such facilities should consult their tax advisors before purchasing shares of the Oregon Municipal Bond Fund or the National Municipal Bond Fund. At the respective times of issuance of the municipal bonds, opinions relating to the validity thereof and to the exemption of interest thereon from federal income tax generally were or will be rendered by bond counsel engaged by the respective issuing authorities. The Oregon Municipal Bond Fund and the National Municipal Bond Fund will not make any review of the issuance of the municipal bonds or of the basis for such opinions. An opinion concerning tax-exempt interest generally assumes continuing compliance with applicable standards and restrictions. Certain circumstances or actions by an issuer after the date of issuance can cause interest on municipal bonds to become includable in gross income. In some cases, the interest on such bonds could become taxable from the date of issuance. The Oregon Municipal Bond Fund and the National Municipal Bond Fund will not monitor any issuers or any municipal bonds to attempt to ensure that the interest remains tax-exempt. If either the Oregon Municipal Bond Fund or the National Municipal Bond Fund declares dividends attributable to taxable interest it has received, it intends to designate as taxable the same percentage of the day's dividend that the actual taxable income earned on that day bears to total income earned on that day. Thus, the percentage of the dividend designated as taxable, if any, may vary from day to day. Shares of the Oregon Municipal Bond Fund and the National Municipal Bond Fund generally would not be a suitable investment for a tax-exempt institution, a tax-exempt retirement plan, or an individual retirement account. To the extent that such an entity or account is tax-exempt, no additional benefit would result from receiving tax-exempt dividends. From time to time, proposals have been introduced before Congress to restrict or eliminate the federal income tax exemption for interest on municipal bonds. Similar proposals may be introduced in the future. If such a proposal were enacted, the availability of municipal bonds for investment by the Oregon Municipal Bond Fund and the National Municipal Bond Fund and the value of portfolio securities held by the these Funds would be affected. OTHER FUNDS. Shareholders of Funds other than the Oregon Municipal Bond Fund and the National Municipal Bond Fund are taxed on distributions of net investment income, or of any excess of net short-term capital gain over net long-term capital loss, as ordinary income. Income distributions to corporate shareholders from the Common Stock Fund, the Growth Fund, the Strategic Value Fund, the International Stock Fund, the Special Fund, and the Balanced Fund may qualify, in whole or part, for the federal income tax dividends-received deduction, depending on the amount of qualifying dividends received by the Fund. Qualifying dividends may include those paid to a Fund by domestic corporations but do not include those paid by foreign corporations. The dividends-received deduction equals 70 percent of qualifying dividends received from a Fund by a shareholder. However, distributions from the Columbia Daily Income Company, the Fixed Income Securities Fund, the Short Term Bond Fund and the High Yield Fund are unlikely to so qualify because the income of these Funds consists largely or entirely of interest rather than dividends. In addition, to the extent the Real Estate Fund's income is derived from interest and distributions from real estate investment trusts ("REITs"), distributions from that Fund will not qualify for the dividends-received deduction. Distributions of any excess of net long-term capital gain over net short-term capital loss from a Fund are ineligible for the dividends-received deduction. GENERAL CONSIDERATIONS. Distributions properly designated by any Fund as representing the excess of net long-term capital gain over net short-term capital loss are taxable to shareholders at the applicable long-term capital gains rate, regardless of the length of time the shares of the Fund have been held by shareholders. For noncorporate taxpayers, the highest rate that applies to long-term capital gains is lower than the highest rate that applies to 56 ordinary income. Any loss that is realized and allowed on redemption of shares of the Fund six months or less from the date of purchase of the shares and following the receipt of a capital gain dividend will be treated as a long-term capital loss to the extent of the capital gain dividend. For this purpose, Section 852(b)(4) of the Code contains special rules on the computation of a shareholder's holding period. A portion of the income distributions from the Real Estate Fund will include a tax return of capital because of the nature of the distributions received by the Fund from its holdings in REITs. A tax return of capital is a nontaxable distribution that reduces the tax cost basis of your shares in the Real Estate Fund. The effect of a return of capital is to defer your tax liability on that portion of your income distributions until you sell your shares of the Real Estate Fund. Distributions of taxable net investment income and net realized capital gains will be taxable as described above, whether paid in shares or in cash. Each distribution is accompanied by a brief explanation of the form and character of the distribution. Within 60 days after the close of each calendar year, each Fund issues to each shareholder a statement of the federal income tax status of all distributions, including a statement of the prior calendar year's distributions which the Fund has designated to be treated as long-term capital gain and, in the case of the Oregon Municipal Bond Fund and the National Municipal Bond Fund, as tax-exempt interest, or in the case of the Real Estate Fund, as a tax return of capital. A distribution may be taxable to a shareholder even if the distribution reduces the net asset value of the shares held below their cost (and is in an economic sense a return of the shareholder's capital). This tax result is most likely when shares are purchased shortly before an annual distribution of capital gains or other earnings. This tax result is extremely unlikely in the case of the Columbia Daily Income Company, which distributes its earnings daily and has few or no capital gains. Each Fund is generally required to obtain from its shareholders a certification of the shareholder's taxpayer identification number and certain other information. Each Fund generally will not accept an investment to establish a new account that does not comply with this requirement. With respect to payments made in 2002 and 2003, if a shareholder fails to certify such number and other information, or upon receipt of certain notices from the Internal Revenue Service, the Fund may be required to withhold 30 percent of any reportable interest or dividends, or redemption proceeds, payable to the shareholder, and to remit such sum to the Internal Revenue Service, for credit toward the shareholder's federal income taxes. A shareholder's failure to provide a social security number or other tax identification number may subject the shareholder to a penalty of $50 imposed by the Internal Revenue Service. In addition, that failure may subject the Fund to a separate penalty of $50. This penalty will be charged against the shareholder's account, which will be closed. Closure of the account may result in a capital gain or loss. If a Fund declares a dividend in October, November, or December payable to shareholders of record on a certain date in such a month and pays the dividend during January of the following year, the shareholders will be taxed as if they had received the dividend on December 31 of the year in which the dividend was declared. Thus, a shareholder may be taxed on the dividend in a taxable year prior to the year of actual receipt. A special tax may apply to a Fund if it fails to make enough distributions during the calendar year. The required distributions for each calendar year generally equal the sum of (a) 98 percent of the ordinary income for the calendar year plus (b) 98 percent of the capital gain net income for the one-year period that ends on October 31 during the calendar year (or for the calendar year itself if the Fund so elects), plus (c) an adjustment relating to any shortfall for the prior taxable year. If the actual distributions are less than the required distributions, a tax of 4 percent applies to the shortfall. A Fund may utilize earnings and profits distributed to shareholders on redemptions made during the year in determining the actual distributions made to the shareholders for that year. The Code allows the deduction by certain individuals, trusts, and estates of "miscellaneous itemized deductions" only to the extent that such deductions exceed 2 percent of adjusted gross income. The limit on miscellaneous itemized deductions will not apply, however, with respect to the expenses incurred by any "publicly offered regulated investment company." Each Fund believes that it is a publicly offered regulated investment company because its shares are continuously offered pursuant to a public offering (within the meaning of Section 4 of the Securities Act of 1933, as amended). Therefore, the limit on miscellaneous itemized deductions should not apply to expenses incurred by any of the Funds. The Funds may purchase zero coupon bonds and payment-in-kind ("PIK") bonds. With respect to zero coupon bonds, a Fund recognizes original-issue-discount income ratably over the life of the bond even though the Fund receives no payments on the bond until the bond matures. With respect to PIK bonds, a Fund recognizes interest income equal to the fair market value of the bonds distributed as interest. Because a Fund must distribute 90 percent of its income to remain qualified as a registered investment company, a Fund may be forced to liquidate a portion of its portfolio to generate cash to distribute to its shareholders with respect to original-issue-discount income from zero coupon bonds and interest income from PIK bonds. 57 FOREIGN INCOME TAXES The International Stock Fund invests in the securities of foreign corporations and issuers. To a lesser extent, the Common Stock Fund, the Growth Fund, the Special Fund, the Small Cap Fund, the Real Estate Fund, the Technology Fund, the Strategic Value Fund, the Balanced Fund, and the High Yield Fund may also invest in such foreign securities. Foreign countries may impose income taxes, generally collected by withholding, on foreign-source dividends and interest paid to a Fund. These foreign taxes will reduce a Fund's distributed income and a Fund's return. The Funds generally expect to incur, however, no foreign income taxes on gains from the sale of foreign securities. The United States has entered into income tax treaties with many foreign countries to reduce or eliminate the foreign taxes on certain dividends and interest received from corporations in those countries. The Funds intend to take advantage of such treaties where possible. It is impossible to predict with certainty in advance the effective rate of foreign taxes that will be paid by a Fund since the amount invested in particular countries will fluctuate and the amounts of dividends and interest relative to total income will fluctuate. U.S. FOREIGN TAX CREDITS OR DEDUCTIONS FOR SHAREHOLDERS OF THE INTERNATIONAL STOCK FUND. Section 853 of the Code allows a regulated investment company to make a special election relating to foreign income taxes if more than 50 percent of the value of the company's total assets at the close of its taxable year consists of stock or securities in foreign corporations and the company satisfies certain holding period requirements. The International Stock Fund generally expects, if necessary, to qualify for and to make the election permitted under Section 853 of the Code. Although the International Stock Fund intends to meet the requirements of the Code to "pass through" such foreign taxes, there can be no assurance that the Fund will be able to do so. The International Stock Fund will elect under Section 853 of the Code only if it believes that it is in the best interests of its shareholders to do so. None of the other Columbia Funds that may invest in foreign securities will qualify under Section 853 of the Code. If the International Stock Fund elects pursuant to Section 853, shareholders of that Fund will be required to include in income (in addition to other taxable distributions) and will be allowed a credit or deduction for, their pro rata portions of the qualifying income taxes paid by the Fund to foreign countries. A shareholder's use of the credits resulting from the election will be subject to limits of Section 904 of the Code. In general, those limits will prevent a shareholder from using foreign tax credits to reduce U.S. taxes on U.S. source income. Each shareholder should discuss the use of foreign tax credits and the Section 904 limits with the shareholder's tax adviser. No deduction for foreign taxes may be claimed under the Code by individual shareholders who do not elect to itemize deductions on their federal income tax returns, although such a shareholder may claim a credit for foreign taxes and in any event will be treated as having taxable income in the amount of the shareholder's pro rata share of foreign taxes paid by the Fund. Each year, the International Stock Fund will provide a statement to each shareholder showing the amount of foreign taxes for which a credit or a deduction may be available. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES. If a Fund invests in an entity that is classified as a "passive foreign investment company" ("PFIC") for federal income tax purposes, the application of certain provisions of the Code applying to PFICs could result in the imposition of certain federal income taxes and interest charges on the Fund. It is anticipated that any taxes on a Fund with respect to investments in PFICs would be insignificant. INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS THAT INVEST IN REMICS. The Real Estate Fund, and to a lesser extent certain other Funds (see INVESTMENTS HELD AND INVESTMENT PRACTICES BY THE FUND), may invest in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of the Real Estate Fund's income from a REIT that is attributable to the REIT's residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a regulated investment company, such as the Real Estate Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Real Estate Fund does not intend to invest in REITs, a substantial portion of the assets of which consists of residual interests in REMICs. 58 STATE INCOME TAXES NATIONAL MUNICIPAL BOND FUND. Distributions from this Fund may be exempt from the income tax of a state, if the distributions are derived from tax-exempt interest paid on the municipal securities of that state or its political subdivisions. Those distributions may not be exempt from another state's income tax, however. In addition, distributions derived from capital gains generally will be subject to state income tax. Shareholders of the National Municipal Bond Fund should consult their tax advisors regarding whether any portion of distributions received from that Fund is exempt from state income tax, because exemption may depend upon whether the shareholder is an individual, subject to tax in any given state, the residence of the individual, and the particular state tax treatment of mutual funds. OREGON MUNICIPAL BOND FUND. Individuals, trusts, and estates will not be subject to the Oregon personal income tax on distributions from the Oregon Municipal Bond Fund that are derived from tax-exempt interest paid on the municipal bonds of Oregon and its political subdivisions and certain other issuers (including Puerto Rico and Guam). However, individuals, trusts, and estates that are subject to Oregon personal income tax also generally are subject to the Oregon personal income tax on distributions from the Oregon Municipal Bond Fund that are derived from other types of income, including interest on the municipal bonds of states, other than Oregon. Furthermore, it is expected that corporations subject to the Oregon corporation excise or income tax will be subject to that tax on income from the Oregon Municipal Bond Fund, including income that is exempt for federal purposes. Shares of the Oregon Municipal Bond Fund will not be subject to Oregon property tax. Additional discussion regarding local taxes, and the tax rules of states other than Oregon, are beyond the scope of this discussion. Oregon generally taxes corporations on interest income from municipal bonds. The Oregon Municipal Bond Fund is a corporation. However, ORS 317.309(2) provides that a regulated investment company may deduct from such interest income the exempt-interest dividends that are paid to shareholders. The Oregon Municipal Bond Fund expects to distribute its interest income so that it will not be liable for Oregon corporation excise or income taxes. The Oregon Municipal Bond Fund and the National Municipal Bond Fund will report annually to its shareholders the percentage and source, on a state-by-state basis, of interest income on municipal bonds received by the Fund during the preceding year. SHORT TERM BOND FUND AND FIXED INCOME FUND. Individuals, trusts, and estates will not be subject to Oregon personal income tax on dividends properly designated by the Short Term Bond Fund as derived from interest on U.S. Government obligations. See ORS 316.683. If a shareholder pays deductible interest on debt incurred to carry shares of the Short Term Bond Fund, the amount of the tax-exempt dividends for state tax purposes will be reduced. If a shareholder sells shares of the Short Term Bond Fund at a loss after holding them for six months or less, the loss will be disallowed for state purposes to the extent of any state tax-exempt dividend received by the shareholder. Local taxes, and the tax rules of states other than Oregon, are beyond the scope of this discussion. GENERAL INFORMATION Capital gains distributed to shareholders of both the Oregon Municipal Bond Fund and the National Municipal Bond Fund will generally be subject to state and local taxes. Further discussion regarding the state and local tax consequences of investments in the Funds are beyond the scope of the tax discussions in the Prospectus and this Statement of Additional Information. ADDITIONAL INFORMATION The foregoing summary and the summary included in the Prospectus under "Distributions and Taxes" of tax consequences of investment in the Funds are necessarily general and abbreviated. No attempt has been made to present a complete or detailed explanation of tax matters. Furthermore, the provisions of the statutes and regulations on which they are based are subject to change, prospectively or retroactively, by legislative or administrative action. Local taxes are beyond the scope of this discussion. Prospective investors in the Funds are urged to consult their own tax advisors regarding specific questions as to federal, state, or local taxes. This discussion applies only to general U.S. shareholders. Foreign investors and U.S. shareholders with particular tax issues or statuses should consult their own tax advisors regarding the special rules that may apply to them. YIELD AND PERFORMANCE 59 The Funds will from time to time advertise or quote their respective yields and total return performance. These figures represent historical data and are calculated according to SEC rules standardizing such computations. The investment return and principal value (except, under normal circumstances, for the Columbia Daily Income Company) will fluctuate so that shares when redeemed may be worth more or less than their original cost. 60 THE COLUMBIA DAILY INCOME COMPANY Current yield is calculated by dividing the net change in the value of an account of one share during an identified seven-calendar-day period by the value of the one share account at the beginning of the same period ($1.00) and multiplying that base period return by 365/7, i.e.: net change in value of account of one share x 365 = Current - ------------------------------------------- --- Yield value of account at beginning of period 7 The current yield for Columbia Daily Income Company for the seven days ended December 31, 2001 was 1.50%. Compounded effective yield is calculated by daily compounding of the base period return referred to above. This calculation is made by adding 1 to the base period return, raising the sum to a number equal to 365 divided by 7, and subtracting 1 from the result, i.e.: 365/7 [(base period return + 1) ] - 1 = Compounded Effective Yield The compounded effective yield for the Columbia Daily Income Company for the seven days ended December 31, 2001 was 1.51%. The determination of net change in the value of an account for purposes of the Columbia Daily Income Company yield calculations reflects the value of additional shares purchased with income dividends from the original share and income dividends declared on both the original share and the additional shares. The determination of net change does not reflect realized gains or losses from the sale of securities or unrealized appreciation or depreciation. The Columbia Daily Income Company includes unrealized appreciation or depreciation, as well as realized gains or losses, in the determination of actual daily dividends. Therefore, the quoted yields as calculated above may differ from the actual dividends paid. THE REAL ESTATE FUND AND THE FIXED INCOME SECURITIES FUNDS Current yields of the Real Estate Fund, the Short Term Bond Fund, the Fixed Income Securities Fund, the Oregon Municipal Bond Fund, the High Yield Fund, and the National Municipal Bond Fund are calculated by dividing the net investment income per share earned during an identified 30-day period by the maximum offering price per share on the last day of the same period, according to the following formula: 6 Yield = 2 [(a - b + 1) - 1] ----- cd Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursement). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The Funds use generally accepted accounting principles in determining actual income paid, and these principles differ in some instances from SEC rules for computing income for the above yield calculations. Therefore, the quoted yields as calculated above may differ from the actual dividends paid. For the 30 day period ended December 31, 2001 the current yields for the Real Estate Fund, the Short Term Bond Fund, the Fixed Income Securities Fund, the Oregon Municipal Bond Fund, the High Yield Fund and the National Municipal Bond Fund were 4.79%, 4.50%, 5.19%, 4.45%, 7.59%, and 4.22%, respectively. The Oregon Municipal Bond Fund may publish a tax equivalent yield for Oregon shareholders that represents the yield that an investor must receive on a fully taxable investment to achieve the same after-tax results at the highest then existing marginal combined Oregon and federal income tax rates, calculated according to the following formula: Tax Equivalent Yield = a + c + e --- --- 1-b 1-d Where: a = that portion of the current yield of the Fund that is exempt from federal and Oregon income tax. b = highest then-existing marginal combined Federal and Oregon income tax rate. c = that portion of the current yield of the Fund that is only exempt from federal gross income tax. d = highest then-existing federal income tax rate. 61 e = that portion of the current yield of the Fund that is not tax exempt. The National Municipal Bond Fund may also publish a tax equivalent yield for nonresidents of Oregon that represents the yield that an investor must receive on a fully taxable investment to achieve the same after-tax results of the highest then-existing marginal federal income tax rate, calculated according to the following formula: Tax Equivalent Yield = a + c --- 1-b Where: a = that portion of the current yield of the Fund that is exempt from federal income tax. b = highest then-existing marginal federal income tax rate. c = that portion of the current yield of the Fund that is not tax exempt. The Short Term Bond Fund may publish a tax equivalent yield for Oregon shareholders that represents the yield that an investor must receive on a fully taxable investment to achieve the same after-tax results at the highest then existing marginal Oregon income tax rate, calculated according to the following formula: Tax Equivalent Yield = a + c --- 1-b Where: a = that portion of the current yield of the Fund that is exempt from Oregon income tax. b = highest then existing marginal Oregon income tax rate. c = that portion of the current yield of the Fund that is not exempt from Oregon income tax. The Funds may also publish average annual total return quotations for recent 1, 5, and 10-year periods (or a fractional portion thereof) computed by finding the average annual compounded rates of return over the 1, 5, and 10-year periods that would equate the initial amount invested to the ending redeemable value, according to the following formula: n P(1+T) = ERV Where: P = a hypothetical initial payment of $1000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1000 payment made at the beginning of the 1, 5, and 10-year periods (or fractional portion thereof) The Funds may publish average annual return (after taxes on distributions) quotations for recent 1, 5, and 10-year periods (or a fractional portion thereof) computed by finding the average annual compounded rates of return over the 1, 5, and 10-year periods (or for the periods of the Fund's operations) that would equate the initial amount invested to the ending redeemable value, according to the following formula: n P(1+T) = ATV D Where: P = a hypothetical initial payment of $1000 T = average annual total return (after taxes on distributions) n = number of years ATV = ending redeemable value of a hypothetical $1000 D payment made at the beginning of the 1, 5, or 10-year periods at the end of the 1, 5, or 10-year periods (or fractional portion), after taxes on fund distributions but not after taxes on redemption 62 The Funds may publish average annual return quotations (after taxes on distributions and redemption) for recent 1, 5, and 10-year periods (or a fractional portion thereof) computed by finding the average annual compounded rates of return over the 1, 5, and 10-year periods (or for the periods of the Fund's operations) that would equate the initial amount invested to the ending redeemable value, according to the following formula: n P(1+T) = ATV DR Where: P = a hypothetical initial payment of $1000 T = average annual total return (after taxes on distributions and redemption) n = number of years ATV = ending redeemable value of a hypothetical $1000 DR payment made at the beginning of the 1, 5, or 10-year periods at the end of the 1, 5, or 10-year periods (or fractional portion), after taxes on fund distributions and redemption. Average annual total return before taxes, average annual total return after taxes on distributions, and average annual total return after taxes on distributions and redemption ("total return figures") may also be published for recent 1, 5, and 10-year periods where the total return figures represent the percentage return for the 1, 5, and 10-year periods that would equate the initial amount invested to the ending redeemable value and the value after taxes on distributions. If a Fund's registration statement under the 1940 Act has been in effect less than 1, 5, or 10 years, the time period during which the registration statement has been in effect will be substituted for the periods stated. Total return figures for the Funds for the applicable periods are set forth in the Funds' Prospectus in the Section entitled "INFORMATION ABOUT THE COLUMBIA FUNDS." The Funds may compare their performance to other mutual funds with similar investment objectives and to the mutual fund industry as a whole, as quoted by ranking services and publications of general interest. For example, these services or publications may include Lipper Analytical Services, Inc., Barron's, Business Week, Forbes, Investor's Business Daily, Money, Morningstar Mutual Funds, The Wall Street Journal, and USA Today. These ranking services and publications rank the performance of the Funds against all other funds over specified periods and against funds in specified categories. The Funds may also compare their performance to that of a recognized stock or bond index including the Standard & Poor's 500, Dow Jones, the Russell indices, the NASDAQ stock indices, the NAREIT Equity Index, the Lehman indices, the Merrill Lynch indices and the Merrill Lynch 1-5 Year Government/Corporate Index or, with respect to the International Stock Fund, a suitable international index, such as the Morgan Stanley Capital International Europe, Australasia, Far East Index. The comparative material found in advertisements, sales literature, or in reports to shareholders may contain past or present performance ratings. This is not to be considered representative or indicative of future results or future performance. Unmanaged indices may assume the reinvestment of dividends, but generally do not reflect deductions for administrative and management costs and expenses. In addition, the Funds may also compare their performance to other income-producing securities such as (i) money market funds; (ii) various bank products (based on average rates of bank and thrift institution certificates of deposit, money market deposit accounts, and other accounts as reported by the Bank Rate Monitor and other financial reporting services, including newspapers); and (iii) U.S. Treasury bills or notes. There are differences between these income-producing alternatives and the Funds other than their yields, some of which are summarized below. The yields of the Funds are not fixed and will fluctuate. The principal value of your investment in each Fund (except, under normal circumstances, the Columbia Daily Income Company) at redemption may be more or less than its original cost. In addition, your investment is not insured and its yield is not guaranteed. Although the yields of bank money market deposit and other similar accounts will fluctuate, principal will not fluctuate and is insured by the Federal Deposit Insurance Corporation up to $100,000. Bank passbook savings accounts normally offer a fixed rate of interest, and their principal and interest are also guaranteed and insured. Bank certificates of deposit offer fixed or variable rates for a set term. Principal and fixed rates are guaranteed and insured up to $100,000. There is no fluctuation in principal value. Withdrawal of these deposits prior to maturity will normally be subject to a penalty. FINANCIAL STATEMENTS 63 The Funds' most recent Annual Report to shareholders is a separate document supplied with this Statement of Additional Information. The financial statements, accompanying notes and report of independent accountants appearing in the Annual report are incorporated by reference into this Statement of Additional Information. 64 COLUMBIA SPECIAL FUND, INC. PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION Under the bylaws of the Registrant, any director or officer of the Registrant may be indemnified by the Registrant against all expenses incurred by him in connection with any claim, action, suit or proceeding, civil or criminal, by reason of his being an officer, director, employee or agent of the Registrant, to the fullest extent permitted under the Business Corporation Act of the State of Oregon and the Investment Company Act of 1940 and related regulations and interpretations of the Securities and Exchange Commission (including SEC Rel. Nos. IC-11,330, IC-10,700 and IC-7,221). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, 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 director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Registrant's directors and officers are also named insureds under an insurance policy issued by ICI Mutual Insurance Company. ITEM 16. EXHIBITS: 1.1 Registrant's Articles of Incorporation. (1) 1.2 Articles of Incorporation proposed to be amended. (5) 2. Restated Bylaws. (1) 3. Not applicable. 4.1 Form of Agreement and Plan of Reorganization among Galaxy Growth Fund II, Columbia Special Fund, Inc. and Columbia Management Group, Inc. (filed as Appendix A to Part A of this Registration Statement). 4.2 Form of Agreement and Plan of Reorganization among Stein Roe Capital Opportunities Fund, Columbia Special Fund, Inc. and Columbia Management Group, Inc. (filed as Appendix B to Part A of this Registration Statement). 4.3 Form of Agreement and Plan of Reorganization among Liberty Midcap Growth Fund, Columbia Special Fund, Inc. and Columbia Management Group, Inc. (filed as Appendix C to Part A of this Registration Statement). 5. Article IV, Sections A and E of the Articles of Incorporation, as amended, and Sections 1.5, 1.8, 1.9 and 1.10 of the Bylaws, as amended, each define the rights of shareholders 6. Investment Advisory Contract. (1) 7. Distribution Agreement. (3) 8. Not applicable. 9. Master Custodian Agreement with State Street Bank and Trust Company. * 10. Not applicable. 11.1 Opinion and Consent of Counsel with respect to the Acquisition of Galaxy Growth Fund II. ** 11.2 Opinion and Consent of Counsel with respect to the Acquisition of Stein Roe Capital Opportunities Fund. ** 11.3 Opinion and Consent of Counsel with respect to the Acquisition of Liberty Midcap Growth Fund. ** 12.1 Opinion and Consent of Counsel on Tax Matters and Consequences to Shareholders with respect to the Acquisition of Galaxy Growth Fund II. ** 12.2 Opinion and Consent of Counsel on Tax Matters and Consequences to Shareholders with respect to the Acquisition of Stein Roe Capital Opportunities Fund. ** 12.3 Opinion and Consent of Counsel on Tax Matters and Consequences to Shareholders with respect to the Acquisition of Liberty Midcap Growth Fund. ** 13. Not applicable. 14.1 Consent of Independent Auditors (E&Y) * 14.2 Consent of Independent Accountants (PWC) * 14.3 Consent of Independent Accountants (PWC) * 15. Not Applicable. 16. Power of Attorney for: J. Jerry Inskeep, Jr., James C. George, Patrick J. Simpson and Richard L. Woolworth. * 2 17.1 Transfer Agent Agreement. (1) 17.2 Amendment No. 1 to Transfer Agent Agreement. (2) 17.3 Code of Ethics. (4) 17.4 Form of Proxy Card and Proxy Insert of Galaxy Growth Fund II. * 17.5 Form of Proxy Card and Proxy Insert of Stein Roe Capital Opportunities Fund. * 17.6 Form of Proxy Card and Proxy Insert of Liberty Midcap Growth Fund. * 17.7 The following documents, each filed via EDGAR and listed with its filing accession number, are incorporated by reference into the Proxy/Prospectus and the Statement of Additional Information for the funds referenced below: - - The Prospectus of Galaxy Growth Fund II dated February 28, 2002 - 0000912057-02-010950 - - The Prospectus of Stein Roe Capital Opportunities Fund dated February 1, 2002 with respect to Class S shares - 0000021832-02-000019 - - The Prospectus of Stein Roe Capital Opportunities Fund dated February 1, 2002 with respect to Class A shares - 0000021832-02-000017 - - The Prospectuses of Liberty Midcap Growth Fund dated February 1, 2002 with respect to Class A, B, C and Z shares - 000021832-02-000017 - - The Prospectus of Liberty Midcap Growth Fund dated February 1, 2002 with respect to Stein Roe Midcap Growth Fund Class S shares - 0000021832-02-000019 - - Supplement to Prospectuses of Stein Roe Capital Opportunities Fund and Liberty Midcap Growth Fund dated April 1, 2002 - 0000021847-02-000092 - - Supplement to Prospectuses and Statement of Additional Information with respect to Stein Roe Capital Opportunities Fund, Class A and Liberty Midcap Growth Fund, Class A, B, C and Z dated April 22, 2002 - 0000021847-02-000121 - - Supplement to Prospectus of Stein Roe Capital Opportunities Fund, Class A dated April 22, 2002 - 0000021847-02-000121 - - Supplement to Prospectus of Liberty Midcap Growth Fund, Class Z dated May 1, 2002 - 0000021847-02-000138 - - The Prospectus of Columbia Special Fund, Inc. dated February 25, 2002 - 0000950149-02-000368 - - The Statement of Additional Information of Galaxy Growth Fund II dated February 28, 2002 - 0000912057-02-010950 3 - - The Statements of Additional Information of Stein Roe Capital Opportunities Fund dated February 1, 2002 with respect to Class A and Class S shares - 0000021832-02-000019 - - The Statements of Additional Information of Liberty Midcap Growth Fund dated February 1, 2002 with respect to Class A, B, C, S and Z shares - 0000021832-02-000019 - - The Statement of Additional Information of Columbia Special Fund, Inc. dated February 25, 2002 - 0000950149-02-000403 - - Management's discussion of Fund performance, the Report of Independent Auditors and the financial statements included in the Annual Report to Shareholders of Galaxy Growth Fund II dated October 31, 2001 - 0000935069-02-000010 - - Management's discussion of Fund performance, the Report of Independent Accountants and the financial statements included in the Annual Report to Shareholders of Stein Roe Capital Opportunities Fund dated September 30, 2001 with respect to Class A shares - 0000950135-01-503725 - - Management's discussion of Fund performance, the Report of Independent Accountants and the financial statements included in the Annual Report to Shareholders of Stein Roe Capital Opportunities Fund dated September 30, 2001 with respect to Class S shares- 0000891804-01-502170 - - Financial statements included in the Semi-Annual Report to Shareholders of Stein Roe Capital Opportunities Fund dated March 31, 2002 with respect to Class A shares - 0000891804-02-001093 - - Financial statements included in the Semi-Annual Report to Shareholders of Stein Roe Capital Opportunities Fund dated March 31, 2002 with respect to Class S shares - 0000891804-02-001090 - - Management's discussion of Fund performance, the Report of Independent Accountants and the financial statements included in the Annual Report to Shareholders of Liberty Midcap Growth Fund dated September 30, 2001 with respect to Class A, B, C and Z shares - 0000950156-01-500497 - - Management's discussion of Fund performance, the Report of Independent Accountants and the financial statements included in the Annual Report to Shareholders of Liberty Midcap Growth Fund dated September 30, 2001 with respect to Class S shares - 0000891804-01-502168 - - Financial statements included in the Semi-Annual Report to Shareholders of Liberty Midcap Growth Fund dated March 31, 2002 with respect to Class A, B, C and Z shares - 0000891804-02-001087 - - Financial statements included in the Semi-Annual Report to Shareholders of Liberty Midcap Growth Fund dated March 31, 2002 with respect to Class S shares - 0000891804-02-001-82 4 - - Management's discussion of Fund performance, the Report of Independent Accountants and the financial statements included in the Annual Report to Shareholders of Columbia Special Fund, Inc. dated December 31, 2001 - 0000950149-02-000402 - ----------------- (1) Incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form N-1A, Securities Act file number 2-99207, filed on February 23, 1998. (2) Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A, Securities Act file number 2-99207, filed on December 7, 1998. (3) Incorporated by reference to Post-Effective Amendment No. 18 to Registrant's Registration Statement on Form N-1A, Securities Act file number 2-99207, filed on February 20, 2001. (4) Incorporated by reference to Post-Effective Amendment No. 19 to Registrant's Registration Statement on Form N-1A, Securities Act file number 2-99207, filed on February 25, 2002. (5) Incorporated by reference to the Registrant's Proxy Statement pursuant to Section 14(a) of the Securities and Exchange Act of 1934, filed on June 5, 2002. * Filed herewith ** To be filed by amendment 5 ITEM 17. UNDERTAKINGS (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to this Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. 6 SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, Columbia Special Fund, Inc., in the City of Portland and State of Oregon on the 3rd day of July, 2002. COLUMBIA SPECIAL FUND, INC. By /s/ JEFF B. CURTIS -------------------------------- Jeff B. Curtis, President As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- JAMES C. GEORGE * Director ) - ------------------------------------ ) James C. George ) ) J. JERRY INSKEEP, JR. * Chairman and Director ) - ------------------------------------ ) J. Jerry Inskeep, Jr. ) ) ) PATRICK J. SIMPSON * Director ) - ------------------------------------ ) Patrick J. Simpson ) ) RICHARD L. WOOLWORTH * Director ) July 3, 2002 - ------------------------------------ ) Richard L. Woolworth ) ) ) /S/ JEFF B. CURTIS President ) - ------------------------------------ (principal executive ) Jeff B. Curtis officer) ) ) /S/ JEFFREY L. LUNZER Vice President (principal ) - ------------------------------------ financial and accounting ) Jeffrey L. Lunzer officer) ) ) * By: /s/ JEFF B. CURTIS ) ------------------------------- ) Jeff B. Curtis ) Attorney-in-fact )
7 INDEX OF EXHIBITS FILED WITH THIS REGISTRATION STATEMENT EXHIBIT NUMBER EXHIBIT - ------- ------- 9. Master Custodian Agreement with State Street Bank and Trust Company. 14.1 Consent of Independent Auditors (E&Y) 14.2 Consent of Independent Accountants (PWC) 14.3 Consent of Independent Accountants (PWC) 16. Power of Attorney for: J. Jerry Inskeep, Jr., James C. George, Patrick J. Simpson and Richard L. Woolworth. 17.4 Form of Proxy Card and Proxy Insert of Galaxy Growth Fund II. 17.5 Form of Proxy Card and Proxy Insert of Stein Roe Capital Opportunities Fund. 17.6 Form of Proxy Card and Proxy Insert of Liberty Midcap Growth Fund. EX-99.9 3 b43477lgexv99w9.txt CUSTODIAN AGREEMENT W/ STATE STREET BANK & TRUST Exhibit 9 MASTER CUSTODIAN AGREEMENT This Agreement between each entity set forth on Appendix A hereto (as such Appendix A may be amended from time to time) (each such entity and each entity made subject to this Agreement in accordance with Section 18, referred to herein individually as the "FUND" and collectively as the "FUNDS"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the "CUSTODIAN"). WITNESSETH: WHEREAS, the Custodian and the Funds desire to enter into this Custodian Agreement; and WHEREAS, the Funds are registered under the Investment Company Act of 1940 and each Fund has appointed the Bank to act as its Custodian. NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT Each Fund hereby employs the Custodian as the custodian of the assets of such Fund, including securities which the Fund desires to be held in places within the United States ("DOMESTIC SECURITIES") and securities it desires to be held outside the United States ("FOREIGN SECURITIES"). All property delivered to the Custodian, its agents or its subcustodians shall be held and dealt with as hereinafter provided. The Custodian shall not be responsible for any property of the Funds not delivered to the Custodian. With respect to uncertificated shares (the "UNDERLYING SHARES") of registered investment companies (hereinafter sometimes referred to as the "UNDERLYING PORTFOLIOS"), the holding of confirmation statements that identify the shares as being recorded in the Custodian's name on behalf of the Fund will be deemed custody for purposes hereof. Upon receipt of Proper Instructions (as such term is defined in Section 6 hereof), the Custodian shall on behalf of the applicable Fund, from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the board of directors or the board of trustees of such Fund (as appropriate, and in each case, the "BOARD"). The Custodian may employ as sub-custodian for each Fund's foreign securities the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4. The Custodian shall have no more or less responsibility or liability to a Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN IN THE UNITED STATES SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of the Funds all non-cash property, to be held by it in the United States, including all domestic securities owned by the Funds other than (a) securities which are maintained pursuant to Section 2.9 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. SECURITIES SYSTEM") and (b) the Underlying Shares owned by the Fund which are maintained pursuant to Section 2.13 in an account with State Street Bank and Trust Company or such other entity which may from time to time act as a transfer agent for the Underlying Portfolios and with respect to which the Custodian is provided with Proper Instructions (the "UNDERLYING TRANSFER AGENt"). SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic securities owned by a Fund held by the Custodian or in a U.S. Securities System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Fund, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.9 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Fund; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.7 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such 2 securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral; 11) For delivery in connection with any loans of securities made by a Fund to a third party lending agent or the lending agent's custodian, in accordance with proper Instructions (which may not provide for the receipt by the Custodian of collateral therefore) agreed upon from time to time by the Custodian and the Fund; 12) For the payment of initial or variation margin in connection with trading in futures and options on futures contracts; 13) For delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; --- ---- 14) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund; 15) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission ("CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund; 16) Upon receipt of instructions from the transfer agent for the Fund (the "TRANSFER AGENT") for delivery to such Transfer Agent or to the holders of treasury shares of beneficial interest in the Fund ("SHARES") in connection with distributions in kind, 3 as may be described from time to time in the Fund's currently effective prospectus and statement of additional information (the "PROSPECTUS"), in satisfaction of requests by holders of shares for repurchase or redemption; 17) In the case of a sale processed through the Underlying Transfer Agent of Underlying Shares, in accordance with Section 2.13 hereof; 18) For delivery to one or more co-custodians (each a "Repo Custodian") appointed by the Fund and communicated to the Custodian by Proper Instructions, including Schedule D (as may be amended from time to time) attached to this Agreement, duly executed by an authorized officer of the Fund, for the purpose of engaging in repurchase agreement transactions, which delivery may be made without contemporaneous receipt by the Custodian of assets in exchange therefore, and upon which delivery to such Repo Custodian in accordance with Proper Instructions from the Fund, the Custodian shall have no further responsibility or obligation to the Fund as a custodian for the Portfolio with respect to the securities so delivered (each such delivery, a "FREE TRADE"), provided that, in preparing reports of monies received or paid out of the Fund or of assets comprising the Fund, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and 19) For any other purpose, but only upon receipt of Proper Instructions from the Fund specifying the securities of the Fund to be delivered and naming the person or persons to whom delivery of such securities shall be made. SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of a Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment advisor as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.8 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Fund under the terms of this Agreement shall be in "street name" or other good delivery form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers. SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in 4 accordance with Rule 17f-3 under the Investment Company Act of 1940, as amended (the "1940 ACT"). Monies held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due the Fund on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled. SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of the Fund in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.9 hereof; (c) in the case of a purchase of Underlying Shares, in accordance with the conditions set forth in Section 2.13 hereof; (d) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund; or (e) 5 for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions as defined herein; 2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued as set forth in Section 5 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends declared or distributions on Shares pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For the payment of initial or variation margin in connection with trading in futures and options on future contracts; 8) For payment of cash to one or more Repo Custodians appointed by the Fund and communicated to the Custodian by Proper Instructions, including Schedule D (as may be amended from time to time) attached to this Agreement, duly executed by an authorized officer of the Fund, for the purpose of engaging in repurchase agreement transactions, which payment may be made without contemporaneous receipt by the Custodian of assets in exchange therefore, and upon which delivery to such Repo Custodian in accordance with Proper Instructions, the Custodian shall have no further responsibility or obligations to the Fund as a custodian for the Fund with respect to the securities so delivered in a Free Trade, provided that, in preparing reports of monies received or paid out of the Fund or of assets comprising the Fund, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and 9) For any other purpose, but only upon receipt of Proper Instructions on behalf of the Fund specifying the amount of such payment and naming the person or persons to whom such payment is to be made. SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself 6 qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. The Underlying Transfer Agent shall not be deemed an agent or subcustodian of the Custodian for purposes of this Section 2.7 or any other provision of this Agreement. SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by the Fund in a U.S. Securities System subject to the following provisions: 1) The Custodian may keep securities of the Fund in a U.S. Securities System provided that such securities are represented in an account of the Custodian in the U.S. Securities System (the "U.S. SECURITIES SYSTEM ACCOUNT") which account shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Fund which are maintained in a U.S. Securities System shall identify by book-entry those securities belonging to the Fund; 3) The Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the U.S. Securities System that such securities have been transferred to the U.S. Securities System Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon (i) receipt of advice from the U.S. Securities System that payment for such securities has been transferred to the U.S. Securities System Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the U.S. Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the U.S. Securities System for the account of the Fund; 4) The Custodian shall provide the Fund with any report obtained by the Custodian on the U.S. Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the U.S. Securities System; 5) Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the U.S. Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from 7 failure of the Custodian or any such agent to enforce effectively such rights as it may have against the U.S. Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the U.S. Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. SECTION 2.9 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose upon receipt of Proper Instructions from the Fund. SECTION 2.10 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of the Fund held by it and in connection with transfers of securities. SECTION 2.11 PROXIES. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. SECTION 2.12 COMMUNICATIONS RELATING TO FUND SECURITIES. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the applicable Fund all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If the Fund 8 desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. SECTION 2.13 DEPOSIT OF FUND ASSETS WITH THE UNDERLYING TRANSFER AGENT. Underlying Shares shall be deposited and/or maintained in an account or accounts maintained with the Underlying Transfer Agent. The Underlying Transfer Agent shall be deemed to be acting as if it is a "securities depository" for purposes of Rule 17f-4 under the 1940 Act. The Fund hereby directs the Custodian to deposit and/or maintain such securities with the Underlying Transfer Agent, subject to the following provisions: 1) The Custodian shall keep Underlying Shares owned by the Fund with the Underlying Transfer Agent provided that such securities are maintained in an account or accounts on the books and records of the Underlying Transfer Agent in the name of the Custodian as custodian for the Fund. 2) The records of the Custodian with respect to Underlying Shares which are maintained with the Underlying Transfer Agent shall identify by book-entry those Underlying Shares belonging to the Fund; 3) The Custodian shall pay for Underlying Shares purchased for the account of the Fund upon (i) receipt of advice from the Fund's investment adviser that such Underlying Shares have been purchased and will be transferred to the account of the Custodian, on behalf of the Fund, on the books and records of the Underlying Transfer Agent, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall receive confirmation from the Underlying Transfer Agent of the purchase of such securities and the transfer of such securities to the Custodian's account with the Underlying Transfer Agent only after such payment is made. The Custodian shall transfer Underlying Shares redeemed for the account of the Fund (i) upon receipt of an advice from the Fund's investment adviser that such securities have been redeemed and that payment for such securities will be transferred to the Custodian and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. The Custodian will receive confirmation from the Underlying Transfer Agent of the redemption of such securities and payment therefor only after such securities are redeemed. Copies of all advices from the Fund's investment adviser of purchases and sales of Underlying Shares for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian, and be provided to the investment adviser at its request; 4) The Custodian shall be not be liable to the Fund for any loss or damage to the Fund resulting from maintenance of Underlying Shares with Underlying Transfer Agent except for losses resulting directly from the negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees. 9 SECTION 3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7 SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings: "COUNTRY RISK" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country. "ELIGIBLE FOREIGN CUSTODIAN" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository. "ELIGIBLE SECURITIES DEPOSITORY" has the meaning set forth in section (b)(1) of Rule 17f-7. "FOREIGN ASSETS" means any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments. "FOREIGN CUSTODY MANAGER" has the meaning set forth in section (a)(3) of Rule 17f-5. "RULE 17f-5" means Rule 17f-5 promulgated under the 1940 Act. "RULE 17f-7" means Rule 17f-7 promulgated under the 1940 Act. SECTION 3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. 3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund, by resolution adopted by the Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets of the Fund held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Fund. 3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Contract, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Fund, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of 10 Schedule A in accordance with Section 3.2.5 hereof. Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Contract. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of the Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of the Fund to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Fund with respect to that country. The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn. 3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES: (a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1). (b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2). (c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract 11 governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder. 3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Foreign Custody Manager shall not be responsible for such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager. 3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Fund described in this Section 3.2 after the occurrence of the material change. 3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE FUND. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise. 3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Contract to the Custodian as the Foreign Custody Manager of the Fund. 3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Fund shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Fund with respect to designated countries. SECTION 3.3 ELIGIBLE SECURITIES DEPOSITORIES. 3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment advisor) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor 12 such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7. The risk analysis provided by the Custodian may include consideration of the following, as deemed appropriate and relevant by the Custodian: a depository's expertise and market reputation, the quality of its services, its financial strength (including the level of settlement guarantee funds, collateral requirements, lines of credit, or insurance as compared with participants' daily settlement obligations), any insurance or indemnification arrangement, the extent and quality of regulation and independent examination of the depository, its standing in published ratings, its internal controls and other procedures for safeguarding investments, and any related legal protections. 3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1. SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings: "FOREIGN SECURITIES SYSTEM" means an Eligible Securities Depository listed on Schedule B hereto. "FOREIGN SUB-CUSTODIAN" means a foreign banking institution serving as an Eligible Foreign Custodian. SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Fund the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Fund, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Fund which are maintained in such account shall identify those securities as belonging to the Fund and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country. SECTION 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. 4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Fund held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper 13 Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Fund in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (a) delivery against expectation of receiving later payment; or (b) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System; (ii) for delivery to one or more Repo Custodians appointed by the Fund and communicated to the Custodian by Proper Instructions, including Schedule D (as may be amended from time to time) attached to this Agreement, duly executed by an authorized officer of the Fund, for the purpose of engaging in repurchase agreement transactions, which payment may be made without contemporaneous receipt by the Custodian of assets in exchange therefore, and upon which delivery to such Repo Custodian in accordance with Proper Instructions, the Custodian shall have no further responsibility or obligations to the Fund or of assets comprising the Fund, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Fund; (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; 14 (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) for delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund; (x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (xi) for delivery in connection with any loans of foreign securities made by the Fund, but only against the receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund; (xii) for delivery in connection with any loans of foreign securities made by the Fund to a third party lending agent, or the lending agent's custodian, in according with Proper Instructions (which may not provide for the receipt by the Custodian of collateral therefore) agreed upon from time to time by the Custodian and the Fund; (xiii) for payment of cash to one or more Repo Custodians appointed by the Fund and communicated to the Custodian by Proper Instructions, including Schedule D (as may be amended from time to time) attached to this Agreement, duly executed by an authorized officer of the Fund, for the purpose of engaging in repurchase and agreement transactions, which payment may be made without contemporaneous receipt by the Custodian of assets in exchange therefor, and upon which delivery to such Repo Custodian in accordance with Proper Instructions from the Fund, the Custodian shall have no further responsibility or obligation to the Fund as a custodian for the Fund with respect to the securities so delivered in a Free Trade, provided that, in preparing reports of monies received or paid out of the Fund or of assets comprising the Fund, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and (xiv) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made. 4.4.2. PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of the Fund in the following cases only: (i) upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (a) delivering money to the seller thereof or to a dealer 15 therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (b) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; (ii) in connection with the conversion, exchange or surrender of foreign securities of the Fund; (iii) for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Contract, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (vi) for payment of part or all of the dividends received in respect of securities sold short; (vii) in connection with the borrowing or lending of foreign securities; and (viii) for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made. 4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Contract to the contrary, settlement and payment for Foreign Assets received for the account of the Fund and delivery of Foreign Assets maintained for the account of the Fund may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer. The Custodian shall provide to each Fund's adviser (an sub-adviser, where applicable), as identified in proper instructions by the Board, the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in such adviser or sub-adviser being provided with substantively less information than had been previously provided hereunder. 16 SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the Fund in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of the Fund under the terms of this Contract unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of the Fund with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Fund. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts. SECTION 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Fund shall be entitled and shall credit such income, as collected, to the Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Fund (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Fund at any 17 time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Fund shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim. SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. SECTION 4.12. LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Contract and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care. SECTION 5. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES The Custodian shall receive from the distributor for the shares or from the Transfer Agent and deposit into the account of the Fund such payments as are received for shares thereof issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for shares of the Fund. From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of shares who have delivered to the Transfer Agent a request for redemption or repurchase of their shares. In connection with the redemption or repurchase of shares, the Custodian is authorized upon receipt 18 of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of shares, the Custodian shall honor checks drawn on the Custodian by a holder of shares, which checks have been furnished by the Fund to the holder of shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. SECTION 6. PROPER INSTRUCTIONS Proper Instructions as used throughout this Agreement means a writing signed or initialed by one or more person or persons as the Board shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. Each applicable Fund shall cause all oral instructions to be confirmed in writing. Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that each Fund and the Custodian agree to security procedures, including but not limited to, the security procedures selected by the Fund in the form of Funds Transfer Addendum attached hereto. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any three-party agreement which requires a segregated asset account in accordance with Section 2.9 of this Agreement. SECTION 7. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY The Custodian may in its discretion, without express authority from the Fund: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board. SECTION 8. EVIDENCE OF AUTHORITY The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the applicable Fund. The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of a Fund ("CERTIFIED 19 RESOLUTION") as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. SECTION 9. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board to keep the books of account of the Fund and/or compute the net asset value per share of the outstanding shares or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times described from time to time in the Prospectus. SECTION 10. RECORDS The Custodian shall with respect to the Fund create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof. SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign 20 Securities System, relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. SECTION 13. COMPENSATION OF CUSTODIAN The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian. SECTION 14. RESPONSIBILITY OF CUSTODIAN So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by and shall be without liability to any Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for a Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Except as may arise from the Custodian's own negligence, willful misconduct or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be without liability to any Fund for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization, expropriation, currency restrictions, or acts of war, revolution, riots or terrorism. Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a sub-custodian or agent, the Custodian shall be without liability to any Fund for any loss, liability, claim or expense resulting from or caused by; (i) events or circumstances beyond the reasonable control of the Custodian or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by any Fund or its duly-authorized investment manager or investment advisor in their instructions to the Custodian provided such instructions have been in accordance with this Agreement; (iii) the insolvency of or acts or omissions by a Securities System; (iv) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian's sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (v) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, any Fund, the Custodian's sub-custodians, nominees or 21 agents or any consequential losses arising out of such delay or failure to transfer such securities including non-receipt of bonus, dividends and rights and other accretions or benefits; (vi) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (vii) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement. If a Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, such Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If a Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of the Fund's assets to the extent necessary to obtain reimbursement. In no event shall the Custodian be liable for indirect, special or consequential damages. SECTION 15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT This Agreement shall become effective for any particular Fund on the date indicated on Appendix A, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, however, that each Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's Declaration of Trust, Articles of Incorporation or other governing documents, as applicable, and further provided, that each Fund may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. 22 Upon termination of this Agreement with respect to a Fund, such Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. SECTION 16. SUCCESSOR CUSTODIAN If a successor custodian for one or more Funds shall be appointed by the applicable Board, the Custodian shall, upon termination with respect to the applicable Fund, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Fund then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Fund held in a Securities System or at the Underlying Transfer Agent. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a Certified Resolution, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such resolution. In the event that no written order designating a successor custodian or Certified Resolution shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of the Fund and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of the Fund, and to transfer to an account of such successor custodian all of the securities of the Fund held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof with respect to any Fund owing to failure of such Fund to procure the Certified Resolution to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect. SECTION 17. INTERPRETIVE AND ADDITIONAL PROVISIONS In connection with the operation of this Agreement, the Custodian and each Fund on behalf may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund's Declaration of Trust, Articles of Incorporation or other governing documents, as applicable. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an 23 amendment of this Agreement. SECTION 18. ADDITIONAL FUNDS In the event that any entity in addition to those Funds listed on Appendix A attached hereto desires to have the Custodian render services as custodian under the terms hereof and if the Custodian wishes to provide such services, then the parties will execute a revised Exhibit A. Upon execution thereof, such entity shall become a Fund hereunder and be bound by all terms, conditions and provisions hereof. SECTION 19. MASSACHUSETTS LAW TO APPLY This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. SECTION 21. PRIOR AGREEMENTS This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between each Fund and the Custodian relating to the custody of each Fund's assets. SECTION 22. NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time. To any Fund: THE COLUMBIA FUNDS 1300 SW Sixth Avenue Portland, Oregon 97207 Attention: Jeffrey L. Lunzer, Vice President Telephone: (503) 973-6689 Facsimile: (503) 243-6834 To the Custodian: STATE STREET BANK AND TRUST COMPANY Lafayette Corporate Center, LCC/4 2 Avenue de Lafayette Boston, Massachusetts 02111 Attention: Janine Donovan, Unit Heat Telephone: (617) 662-2079 Telecopy: (617) 662-4313 Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable 24 twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting. SECTION 23. REPRODUCTION OF DOCUMENTS This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 24. REMOTE ACCESS SERVICES ADDENDUM The Custodian and each Fund agree to be bound by the terms of the Remote Access Services Addendum attached hereto. SECTION 25. SHAREHOLDER COMMUNICATIONS ELECTION SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Funds to indicate whether they authorize the Custodian to provide the Funds' names, addresses, and share positions to requesting companies whose securities the Funds own. If the Funds tell the Custodian "no", the Custodian will not provide this information to requesting companies. If the Funds tells the Custodian "yes" or do not check either "yes" or "no" below, the Custodian is required by the rule to treat the Funds as consenting to disclosure of this information for all securities owned by the Funds or any funds or accounts established by the Funds. For the Funds' protection, the Rule prohibits the requesting company from using the Funds' names and addresses for any purpose other than corporate communications. Please indicate below whether the Funds consent or object by checking one of the alternatives below. YES [ ] The Custodian is authorized to release the Funds' names, addresses, and share positions. NO [X] The Custodian is not authorized to release the Funds' names, addresses, and share positions. [Remainder of page intentionally left blank.] 25 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of June 27, 2002.
EACH OF THE FUNDS LISTED ON APPENDIX A: FUND SIGNATURE ATTESTED TO BY: By: /s/ JEFF B. CURTIS By: /s/ JEFFREY L. LUNZER -------------------------------- ---------------------------- Name: Jeff B. Curtis Name: Jeffrey L. Lunzer -------------------------------- ---------------------------- Title: President Title: Vice President -------------------------------- ---------------------------- STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY: By: /s/ JOSEPH L. HOOLEY By: /s/ RAELENE S. LAPLANTE -------------------------------- ---------------------------- Name: Joseph L. Hooley Name: Raelene S. LaPlante -------------------------------- ---------------------------- Title: Executive Vice President Title: Vice President and Counsel -------------------------------- ----------------------------
APPENDIX A CUSTODIAN AGREEMENT COLUMBIA BALANCED FUND, INC. COLUMBIA COMMON STOCK FUND, INC. COLUMBIA DAILY INCOME COMPANY COLUMBIA FIXED INCOME SECURITIES FUND, INC. COLUMBIA GROWTH FUND, INC. COLUMBIA HIGH YIELD FUND, INC. COLUMBIA INTERNATIONAL STOCK FUND, INC. COLUMBIA NATIONAL MUNICIPAL BOND FUND, INC. COLUMBIA OREGON MUNICIPAL BOND FUND, INC. COLUMBIA REAL ESTATE EQUITY FUND, INC. COLUMBIA SHORT TERM BOND FUND, INC. COLUMBIA SMALL CAP FUND, INC. COLUMBIA SPECIAL FUND, INC. COLUMBIA STRATEGIC VALUE FUND, INC. COLUMBIA TECHNOLOGY FUND, INC.
FOR THE ABOVE FUND PARTIES STATE STREET BANK AND TRUST COMPANY By: /s/ JEFF B. CURTIS By: /s/ JOSEPH L. HOOLEY -------------------------------- ---------------------------- Name: Jeff B. Curtis Name: Joseph L. Hooley -------------------------------- ---------------------------- Title: President Title: Executive Vice President -------------------------------- ---------------------------- Date: June 27, 2002 ---------------------------
STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Argentina Citibank, N.A. Australia Westpac Banking Corporation Austria Erste Bank der Osterreichischen Sparkassen AG Bahrain HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Bangladesh Standard Chartered Bank Belgium Fortis Bank nv-sa Benin via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Bermuda The Bank of Bermuda Limited Bolivia Citibank, N. A. Botswana Barclays Bank of Botswana Limited Brazil Citibank, N.A. Bulgaria ING Bank N.V. Burkina Faso via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Canada State Street Trust Company Canada Chile BankBoston, N.A. People's Republic Hongkong and Shanghai Banking Corporation Limited, of China Shanghai and Shenzhen branches
03/31/02 1 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Colombia Cititrust Colombia S.A. Sociedad Fiduciaria Costa Rica Banco BCT S.A. Croatia Privredna Banka Zagreb d.d Cyprus Cyprus Popular Bank Ltd. Czech Republic Ceskoslovenska Obchodni Banka, A.S. Denmark Danske Bank A/S Ecuador Citibank, N.A. Egypt HSBC Bank Egypt S.A.E. (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Estonia Hansabank Finland Nordea Bank Finland Plc. France BNP Paribas Securities Services, S.A. Germany Dresdner Bank AG Ghana Barclays Bank of Ghana Limited Greece National Bank of Greece S.A. Guinea-Bissau via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast
03/31/02 2 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Hong Kong Standard Chartered Bank Hungary HVB Bank Hungary Rt. Iceland Icebank Ltd. India Deutsche Bank AG Hongkong and Shanghai Banking Corporation Limited Indonesia Standard Chartered Bank Ireland Bank of Ireland Israel Bank Hapoalim B.M. Italy BNP Paribas Securities Services, S.A. Ivory Coast Societe Generale de Banques en Cote d'Ivoire Jamaica Scotiabank Jamaica Trust and Merchant Bank Ltd. Japan The Fuji Bank, Limited Sumitomo Mitsui Banking Corporation Jordan HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Kazakhstan HSBC Bank Kazakhstan (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Kenya Barclays Bank of Kenya Limited
03/31/02 3 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Republic of Korea Hongkong and Shanghai Banking Corporation Limited Latvia A/s Hansabanka Lebanon HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Lithuania Vilniaus Bankas AB Malaysia Standard Chartered Bank Malaysia Berhad Mali via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Mauritius Hongkong and Shanghai Banking Corporation Limited Mexico Banco Nacional de Mexico S.A. Morocco Banque Commerciale du Maroc Namibia Standard Bank Namibia Limited Netherlands KAS BANK N.V. New Zealand Westpac Banking Corporation Niger via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Nigeria Stanbic Bank Nigeria Limited Norway Nordea Bank Norge ASA
03/31/02 4 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Oman HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Pakistan Deutsche Bank AG Palestine HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Panama BankBoston, N.A. Peru Citibank, N.A. Philippines Standard Chartered Bank Poland Bank Handlowy w Warszawie S.A. Portugal Banco Comercial Portugues Qatar HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Romania ING Bank N.V. Russia Credit Suisse First Boston AO - Moscow (as delegate of Credit Suisse First Boston - Zurich) Senegal via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Singapore The Development Bank of Singapore Limited Slovak Republic Ceskoslovenska Obchodni Banka, A.S., pobocka zahranicnej banky v SR Slovenia Bank Austria Creditanstalt d.d. - Ljubljana
03/31/02 5 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN South Africa Nedcor Bank Limited Standard Bank of South Africa Limited Spain Banco Santander Central Hispano S.A. Sri Lanka Hongkong and Shanghai Banking Corporation Limited Swaziland Standard Bank Swaziland Limited Sweden Skandinaviska Enskilda Banken Switzerland UBS AG Taiwan - R.O.C. Central Trust of China Thailand Standard Chartered Bank Togo via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Trinidad & Tobago Republic Bank Limited Tunisia Banque Internationale Arabe de Tunisie Turkey Citibank, N.A. Ukraine ING Bank Ukraine United Arab Emirates HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) United Kingdom State Street Bank and Trust Company, London Branch
03/31/02 6 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Uruguay BankBoston, N.A. Venezuela Citibank, N.A. Vietnam The Hongkong and Shanghai Banking Corporation Limited Zambia Barclays Bank of Zambia Limited Zimbabwe Barclays Bank of Zimbabwe Limited
03/31/02 7 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Argentina Caja de Valores S.A. Australia Austraclear Limited Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank Division) Belgium Caisse Interprofessionnelle de Depots et de Virements de Titres, S.A. Banque Nationale de Belgique Benin Depositaire Central - Banque de Reglement Brazil Companhia Brasileira de Liquidacao e Custodia Sistema Especial de Liquidacao e de Custodia (SELIC) Central de Custodia e de Liquidacao Financeira de Titulos Privados (CETIP) Bulgaria Central Depository AD Bulgarian National Bank Burkina Faso Depositaire Central - Banque de Reglement Canada Canadian Depository for Securities Limited Chile Deposito Central de Valores S.A. People's Republic China Securities Depository and Clearing Corporation Limited of China Shanghai Branch China Securities Depository and Clearing Corporation Limited Shenzhen Branch
03/31/02 1 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Colombia Deposito Centralizado de Valores Deposito Central de Valores Costa Rica Central de Valores S.A. Croatia Ministry of Finance National Bank of Croatia Sredisnja Depozitarna Agencija d.d. Czech Republic Stredisko cennych papiru - Ceska republika Czech National Bank Denmark Vaerdipapircentralen (Danish Securities Center) Egypt Misr for Clearing, Settlement, and Depository S.A.E. Estonia Eesti Vaartpaberikeskus Finland Finnish Central Securities Depository France Euroclear France Germany Clearstream Banking AG, Frankfurt Greece Bank of Greece, System for Monitoring Transactions in Securities in Book-Entry Form Apothetirion Titlon AE - Central Securities Depository Guinea-Bissau Depositaire Central - Banque de Reglement
03/31/02 2 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Hong Kong Hong Kong Securities Clearing Company Limited Central Moneymarkets Unit Hungary Kozponti Elszamolohaz es Ertektar (Budapest) Rt. (KELER) Iceland Iceland Securities Depository Limited India National Securities Depository Limited Central Depository Services India Limited Reserve Bank of India Indonesia Bank Indonesia PT Kustodian Sentral Efek Indonesia Israel Tel Aviv Stock Exchange Clearing House Ltd. (TASE Clearinghouse) Italy Monte Titoli S.p.A. Ivory Coast Depositaire Central - Banque de Reglement Jamaica Jamaica Central Securities Depository Japan Japan Securities Depository Center (JASDEC) Bank of Japan Kazakhstan Central Depository of Securities Kenya Central Bank of Kenya
03/31/02 3 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Republic of Korea Korea Securities Depository Latvia Latvian Central Depository Lebanon Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (Midclear) S.A.L. Banque du Liban Lithuania Central Securities Depository of Lithuania Malaysia Malaysian Central Depository Sdn. Bhd. Bank Negara Malaysia Mali Depositaire Central - Banque de Reglement Mauritius Central Depository and Settlement Co. Ltd. Bank of Mauritius Mexico S.D. Indeval, S.A. de C.V. Morocco Maroclear Netherlands Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (NECIGEF) New Zealand New Zealand Central Securities Depository Limited Niger Depositaire Central - Banque de Reglement Nigeria Central Securities Clearing System Limited
03/31/02 4 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Norway Verdipapirsentralen (Norwegian Central Securities Depository) Oman Muscat Depository & Securities Registration Company, SAOC Pakistan Central Depository Company of Pakistan Limited State Bank of Pakistan Palestine Clearing Depository and Settlement, a department of the Palestine Stock Exchange Peru Caja de Valores y Liquidaciones, Institucion de Compensacion y Liquidacion de Valores S.A Philippines Philippine Central Depository, Inc. Registry of Scripless Securities (ROSS) of the Bureau of Treasury Poland National Depository of Securities (Krajowy Depozyt Papierow Wartos<180>ciowych SA) Central Treasury Bills Registrar Portugal INTERBOLSA - Sociedade Gestora de Sistemas de Liquidacao e de Sistemas Centralizados de Valores Mobiliarios, S.A. Qatar Central Clearing and Registration (CCR), a department of the Doha Securities Market Romania National Securities Clearing, Settlement and Depository Company Bucharest Stock Exchange Registry Division National Bank of Romania
03/31/02 5 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Russia Vneshtorgbank, Bank for Foreign Trade of the Russian Federation Senegal Depositaire Central - Banque de Reglement Singapore Central Depository (Pte) Limited Monetary Authority of Singapore Slovak Republic Stredisko cennych papierov SR, a.s. National Bank of Slovakia Slovenia KDD - Centralna klirinsko depotna druzba d.d. South Africa Central Depository Limited Share Transactions Totally Electronic (STRATE) Ltd. Spain Servicio de Compensacion y Liquidacion de Valores, S.A. Banco de Espana Sri Lanka Central Depository System (Pvt) Limited Sweden Vardepapperscentralen VPC AB (Swedish Central Securities Depository) Switzerland SegaIntersettle AG (SIS) Taiwan - R.O.C. Taiwan Securities Central Depository Co., Ltd. Thailand Thailand Securities Depository Company Limited
03/31/02 6 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Togo Depositaire Central - Banque de Reglement Tunisia Societe Tunisienne Interprofessionelle pour la Compensation et de Depots des Valeurs Mobilieres Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK) Central Bank of Turkey Ukraine National Bank of Ukraine Mizhregionalny Fondovy Souz United Arab Emirates Clearing and Depository System, a department of the Dubai Financial Market Venezuela Banco Central de Venezuela Zambia LuSE Central Shares Depository Limited Bank of Zambia
TRANSNATIONAL Euroclear Clearstream Banking AG 03/31/02 7 SCHEDULE D
TRI-PARTY REPO CUSTODIAN BANKS ACCOUNT NUMBERS
Authorized Signatures: By: By: -------------------------------- ---------------------------- Title: Title: -------------------------------- ---------------------------- Date: June 27, 2002 Date: June 27, 2002 -------------------------------- ----------------------------
PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION (SCHEDULED FREQUENCY) The Guide to Custody in World Markets An overview of settlement and safekeeping procedures, (hardcopy annually and regular custody practices and foreign investor considerations for the website updates) markets in which State Street offers custodial services. Global Custody Network Review Information relating to Foreign Sub-Custodians in State Street's (annually) Global Custody Network. The Review stands as an integral part of the materials that State Street provides to its U.S. mutual fund clients to assist them in complying with SEC Rule 17f-5. The Review also gives insight into State Street's market expansion and Foreign Sub-Custodian selection processes, as well as the procedures and controls used to monitor the financial condition and performance of our Foreign Sub-Custodian banks. Securities Depository Review Custody risk analyses of the Foreign Securities Depositories presently (annually) operating in Network markets. This publication is an integral part of the materials that State Street provides to its U.S. mutual fund clients to meet informational obligations created by SEC Rule 17f-7. Global Legal Survey With respect to each market in which State Street offers custodial (annually) services, opinions relating to whether local law restricts (i) access of a fund's independent public accountants to books and records of a Foreign Sub-Custodian or Foreign Securities System, (ii) a fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (iii) a fund's ability to recover in the event of a loss by a Foreign Sub-Custodian or Foreign Securities System, and (iv) the ability of a foreign investor to convert cash and cash equivalents to U.S. dollars. Subcustodian Agreements Copies of the contracts that State Street has entered into with each (annually) Foreign Sub-Custodian that maintains U.S. mutual fund assets in the markets in which State Street offers custodial services. Global Market Bulletin Information on changing settlement and custody conditions in (daily or as necessary) markets where State Street offers custodial services. Includes changes in market and tax regulations, depository developments, dematerialization information, as well as other market changes that may impact State Street's clients. Foreign Custody Advisories For those markets where State Street offers custodial (as necessary) services that exhibit special risks or infrastructures impacting custody, State Street issues market advisories to highlight those unique market factors which might impact our ability to offer recognized custody service levels. Material Change Notices Informational letters and accompanying materials confirming (presently on a quarterly State Street's foreign custody arrangements, including a basis or as otherwise necessary) summary of material changes with Foreign Sub-Custodians that have occurred during the previous quarter. The notices also identify any material changes in the custodial risks associated with maintaining assets with Foreign Securities Depositories.
[STATE STREET LOGO] FUNDS TRANSFER ADDENDUM OPERATING GUIDELINES 1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit Client's account(s) upon the receipt of a payment order in compliance with the selected Security Procedure chosen for funds transfer and in the amount of money that State Street has been instructed to transfer. State Street shall execute payment orders in compliance with the Security Procedure and with the Client's instructions on the execution date provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after this time will be deemed to have been received on the next business day. 2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it has designated on the Selection Form was selected by the Client from Security Procedures offered by State Street. The Client agrees that the Security Procedures are reasonable and adequate for its wire transfer transactions and agrees to be bound by any payment orders, amendments and cancellations, whether or not authorized, issued in its name and accepted by State Street after being confirmed by any of the selected Security Procedures. The Client also agrees to be bound by any other valid and authorized payment order accepted by State Street. The Client shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated in writing to State Street. The Client must notify State Street immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Client's authorized personnel. State Street shall verify the authenticity of all instructions according to the Security Procedure. 3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the account number shall take precedence and govern. Financial institutions that receive payment orders initiated by State Street at the instruction of the Client may also process payment orders on the basis of account numbers, regardless of any name included in the payment order. State Street will also rely on any financial institution identification numbers included in any payment order, regardless of any financial institution name included in the payment order. 4. REJECTION: State Street reserves the right to decline to process or delay the processing of a payment order which (a) is in excess of the collected balance in the account to be charged at the time of State Street's receipt of such payment order; (b) if initiating such payment order would cause State Street, in State Street's sole judgment, to exceed any volume, aggregate dollar, network, time, credit or similar limits upon wire transfers which are applicable to State Street; or (c) if State Street, in good faith, is unable to satisfy itself that the transaction has been properly authorized. 5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure provided that such requests are received in a timely manner affording State Street reasonable opportunity to act. However, State Street assumes no liability if the request for amendment or cancellation cannot be satisfied. 6. ERRORS: State Street shall assume no responsibility for failure to detect any erroneous payment order provided that State Street complies with the payment order instructions as received and State Street complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders. 7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless State Street is notified of the unauthorized payment order within thirty (30) days of notification by State Street of the acceptance of such payment order. In no event shall State Street be liable for special, indirect or consequential damages, even if advised of the possibility of such damages and even for failure to execute a payment order. 8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a Client initiates or receives ACH credit and debit entries pursuant to these Guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, State Street will act as an Originating Depository Financial Institution and/or Receiving Depository Institution, as the case may be, with respect to such entries. Credits given by State Street with respect to an ACH credit entry are provisional until State Street receives final settlement for such entry from the Federal Reserve Bank. If State Street does not receive such final settlement, the Client agrees that State Street shall receive a refund of the amount credited to the Client in connection with such entry, and the party making payment to the Client via such entry shall not be deemed to have paid the amount of the entry. 9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment orders shall ordinarily be provided within 24 hours. Notice may be delivered through State Street's proprietary information systems, such as, but not limited to Horizon and GlobalQuest(R), account statements, advices, or by facsimile or callback. The Client must report any objections to the execution of a payment order within 30 days. [STATE STREET LOGO] FUNDS TRANSFER ADDENDUM 10. LIABILITY ON FOREIGN ACCOUNTS: State Street shall not be required to repay any deposit made at a non-U.S. branch of State Street, or any deposit made with State Street and denominated in a non-U.S. dollar currency, if repayment of such deposit or the use of assets denominated in the non-U.S. dollar currency is prevented, prohibited or otherwise blocked due to: (a) an act of war, insurrection or civil strife; (b) any action by a non-U.S. government or instrumentality or authority asserting governmental, military or police power of any kind, whether such authority be recognized as a defacto or a dejure government, or by any entity, political or revolutionary movement or otherwise that usurps, supervenes or otherwise materially impairs the normal operation of civil authority; or(c) the closure of a non-U.S. branch of State Street in order to prevent, in the reasonable judgment of State Street, harm to the employees or property of State Street. The obligation to repay any such deposit shall not be transferred to and may not be enforced against any other branch of State Street. The foregoing provisions constitute the disclosure required by Massachusetts General Laws, Chapter 167D, Section 36. While State Street is not obligated to repay any deposit made at a non-U.S. branch or any deposit denominated in a non-U.S. currency during the period in which its repayment has been prevented, prohibited or otherwise blocked, State Street will repay such deposit when and if all circumstances preventing, prohibiting or otherwise blocking repayment cease to exist. 11. MISCELLANEOUS: State Street and the Client agree to cooperate to attempt to recover any funds erroneously paid to the wrong party or parties, regardless of any fault of State Street or the Client, but the party responsible for the erroneous payment shall bear all costs and expenses incurred in trying to effect such recovery. These Guidelines may not be amended except by a written agreement signed by the parties. [STATE STREET LOGO] FUNDS TRANSFER ADDENDUM Security Procedure(s) Selection Form Please select one or more of the funds transfer security procedures indicated below. [ ]SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a cooperative society owned and operated by member financial institutions that provides telecommunication services for its membership. Participation is limited to securities brokers and dealers, clearing and depository institutions, recognized exchanges for securities, and investment management institutions. SWIFT provides a number of security features through encryption and authentication to protect against unauthorized access, loss or wrong delivery of messages, transmission errors, loss of confidentiality and fraudulent changes to messages. SWIFT is considered to be one of the most secure and efficient networks for the delivery of funds transfer instructions. Selection of this security procedure would be most appropriate for existing SWIFT members. [ ]STANDING INSTRUCTIONS Standing Instructions may be used where funds are transferred to a broker on the Client's established list of brokers with which it engages in foreign exchange transactions. Only the date, the currency and the currency amount are variable. In order to establish this procedure, State Street will send to the Client a list of the brokers that State Street has determined are used by the Client. The Client will confirm the list in writing, and State Street will verify the written confirmation by telephone. Standing Instructions will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the Standing Instruction will be confirmed by telephone prior to execution. [ ]REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data communications between the Client and State Street. Security procedures include encryption and or the use of a test key by those individuals authorized as Automated Batch Verifiers. Clients selecting this option should have an existing facility for completing CPU-CPU transmissions. This delivery mechanism is typically used for high-volume business. [ ]GLOBAL HORIZON INTERCHANGE(SM) FUNDS TRANSFER SERVICE Global Horizon Interchange Funds Transfer Service (FTS) is a State Street proprietary microcomputer-based wire initiation system. FTS enables Clients to electronically transmit authenticated Fedwire, CHIPS or internal book transfer instructions to State Street. This delivery mechanism is most appropriate for Clients with a low-to-medium number of transactions (5-75 per day), allowing Clients to enter, batch, and review wire transfer instructions on their PC prior to release to State Street. [ ]TELEPHONE CONFIRMATION (CALLBACK) Telephone confirmation will be used to verify all non-repetitive funds transfer instructions received via untested facsimile or phone. This procedure requires Clients to designate individuals as authorized initiators and authorized verifiers. State Street will verify that the instruction contains the signature of an authorized person and prior to execution, will contact someone other than the originator at the Client's location to authenticate the instruction. Selection of this alternative is appropriate for Clients who do not have the capability to use other security procedures. [ ]REPETITIVE WIRES For situations where funds are transferred periodically (minimum of one instruction per calendar quarter) from an existing authorized account to the same payee (destination bank and account number) and only the date and currency amount are variable, a repetitive wire may be implemented. Repetitive wires will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the instruction will be confirmed by telephone prior to execution. Telephone confirmation is used to establish this process. Repetitive wire instructions must be reconfirmed annually. This alternative is recommended whenever funds are frequently transferred between the same two accounts. [ ]TRANSFERS INITIATED BY FACSIMILE The Client faxes wire transfer instructions directly to State Street Mutual Fund Services. Standard security procedure requires the use of a random number test key for all transfers. Every six months the Client receives test key logs from State Street. The test key contains alpha-numeric characters, which the Client puts on each document faxed to State Street. This procedure ensures all wire instructions received via fax are authorized by the Client. We provide this option for Clients who wish to batch wire instructions and transmit these as a group to State Street Mutual Fund Services once or several times a day. [STATE STREET LOGO] FUNDS TRANSFER ADDENDUM [ ]AUTOMATED CLEARING HOUSE (ACH) State Street receives an automated transmission or a magnetic tape from a Client for the initiation of payment (credit) or collection (debit) transactions through the ACH network. The transactions contained on each transmission or tape must be authenticated by the Client. Clients using ACH must select one or more of the following delivery options: [ ]GLOBAL HORIZON INTERCHANGE AUTOMATED CLEARING HOUSE SERVICE Transactions are created on a microcomputer, assembled into batches and delivered to State Street via fully authenticated electronic transmissions in standard NACHA formats. [ ]Transmission from Client PC to State Street Mainframe with Telephone Callback [ ]Transmission from Client Mainframe to State Street Mainframe with Telephone Callback [ ]Transmission from DST Systems to State Street Mainframe with Encryption [ ]Magnetic Tape Delivered to State Street with Telephone Callback State Street is hereby instructed to accept funds transfer instructions only via the delivery methods and security procedures indicated. The selected delivery methods and security procedure(s) will be effective for payment orders initiated by our organization. KEY CONTACT INFORMATION Whom shall we contact to implement your selection(s)? CLIENT OPERATIONS CONTACT ALTERNATE CONTACT - -------------------------------------- ------------------------------------- Name Name - -------------------------------------- ------------------------------------- Address Address - -------------------------------------- ------------------------------------- City/State/Zip Code City/State/Zip Code - -------------------------------------- ------------------------------------- Telephone Number Telephone Number - -------------------------------------- ------------------------------------- Facsimile Number Facsimile Number - -------------------------------------- SWIFT Number - -------------------------------------- Telex Number [STATE STREET LOGO] FUNDS TRANSFER ADDENDUM INSTRUCTION(S) TELEPHONE CONFIRMATION FUND -------------------------------------------------------------------------- INVESTMENT ADVISER ------------------------------------------------------------- AUTHORIZED INITIATORS Please Type or Print Please provide a listing of Fund officers or other individuals who are currently authorized to INITIATE wire transfer instructions to State Street: NAME TITLE (Specify whether position SPECIMEN SIGNATURE is with Fund or Investment Adviser) - ---------------------- ------------------------------- ------------------ - ---------------------- ------------------------------- ------------------ - ---------------------- ------------------------------- ------------------ - ---------------------- ------------------------------- ------------------ - ---------------------- ------------------------------- ------------------ AUTHORIZED VERIFIERS Please Type or Print Please provide a listing of Fund officers or other individuals who will be CALLED BACK to verify the initiation of repetitive wires of $10 million or more and all non-repetitive wire instructions: NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF ANY) - ---------------------- --------------------- -------------------------- - ---------------------- --------------------- -------------------------- - ---------------------- --------------------- -------------------------- - ---------------------- --------------------- -------------------------- - ---------------------- --------------------- -------------------------- REMOTE ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT ADDENDUM to that certain Custodian Agreement dated as of June 27, 2002 (the "Custodian Agreement") between each entity set forth on Appendix A thereto (individually and collectively, the "Customer") and State Street Bank and Trust Company, including its subsidiaries and affiliates ("State Street"). State Street has developed and utilizes proprietary accounting and other systems in conjunction with the custodian services which State Street provides to the Customer. In this regard, State Street maintains certain information in databases under its control and ownership which it makes available to its customers (the "Remote Access Services"). The Services State Street agrees to provide the Customer, and its designated investment advisors, consultants or other third parties authorized by State Street ("Authorized Designees") with access to In~Sight(SM) as described in Exhibit A or such other systems as may be offered from time to time (the "System") on a remote basis. Security Procedures The Customer agrees to comply, and to cause its Authorized Designees to comply, with remote access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the System and access to the Remote Access Services. The Customer agrees to advise State Street immediately in the event that it learns or has reason to believe that any person to whom it has given access to the System or the Remote Access Services has violated or intends to violate the terms of this Addendum and the Customer will cooperate with State Street in seeking injunctive or other equitable relief. The Customer agrees to discontinue use of the System and Remote Access Services, if requested, for any security reasons cited by State Street. Fees Fees and charges for the use of the System and the Remote Access Services and related payment terms shall be as set forth in the Custody Fee Schedule in effect from time to time between the parties (the "Fee Schedule"). The Customer shall be responsible for any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street). Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street. Proprietary Information/Injunctive Relief The System and Remote Access Services described herein and the databases, computer programs, screen formats, report formats, interactive design techniques, formulae, processes, systems, software, knowhow, algorithms, programs, training aids, printed materials, methods, books, records, files, documentation and other information made available to the Customer by State Street as part of the Remote Access Services and through the use of the System and all copyrights, patents, trade secrets and other proprietary rights of i State Street related thereto are the exclusive, valuable and confidential property of State Street and its relevant licensors (the "Proprietary Information"). The Customer agrees on behalf of itself and its Authorized Designees to keep the Proprietary Information confidential and to limit access to its employees and Authorized Designees (under a similar duty of confidentiality) who require access to the System for the purposes intended. The foregoing shall not apply to Proprietary Information in the public domain or required by law to be made public. The Customer agrees to use the Remote Access Services only in connection with the proper purposes of this Addendum. The Customer will not, and will cause its employees and Authorized Designees not to, (i) permit any third party to use the System or the Remote Access Services, (ii) sell, rent, license or otherwise use the System or the Remote Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the System or the Remote Access Services for any fund, trust or other investment vehicle without the prior written consent of State Street, or (iv) allow or cause any information transmitted from State Street's databases, including data from third party sources, available through use of the System or the Remote Access Services, to be published, redistributed or retransmitted for other than use for or on behalf of the Customer, as State Street's customer. The Customer agrees that neither it nor its Authorized Designees will modify the System in any way; enhance or otherwise create derivative works based upon the System; nor will the Customer or Customer's Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System. The Customer acknowledges that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury to State Street inadequately compensable in damages at law and that State Street shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available. Limited Warranties State Street represents and warrants that it is the owner of and has the right to grant access to the System and to provide the Remote Access Services contemplated herein. Because of the nature of computer information technology, including but not limited to the use of the Internet, and the necessity of relying upon third party sources, and data and pricing information obtained from third parties, the System and Remote Access Services are provided "AS IS", and the Customer and its Authorized Designees shall be solely responsible for the investment decisions, results obtained, regulatory reports and statements produced using the Remote Access Services. State Street and its relevant licensors will not be liable to the Customer or its Authorized Designees for any direct or indirect, special, incidental, punitive or consequential damages arising out of or in any way connected with the System or the Remote Access Services, nor shall either party be responsible for delays or nonperformance under this Addendum arising out of any cause or event beyond such party's control. State Street will take reasonable steps to ensure that its products (and those of its third-party suppliers) reflect the available state of the art technology to offer products that are Year 2000 compliant, including, but not limited to, century recognition of dates, calculations that correctly compute same century and multi century formulas and date values, and interface values that reflect the date issues arising between now and the next one-hundred years, and if any changes are required, State Street will make the changes ii to its products at no cost to you and in a commercially reasonable time frame and will require third-party suppliers to do likewise. The Customer will do likewise for its systems. EXCEPT AS EXPRESSLY SET FORTH IN THIS ADDENDUM, STATE STREET, FOR ITSELF AND ITS RELEVANT LICENSORS, EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE SYSTEM AND THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE. Infringement State Street will defend or, at our option, settle any claim or action brought against the Customer to the extent that it is based upon an assertion that access to the System or use of the Remote Access Services by the Customer under this Addendum constitutes direct infringement of any patent or copyright or misappropriation of a trade secret, provided that the Customer notifies State Street promptly in writing of any such claim or proceeding and cooperates with State Street in the defense of such claim or proceeding. Should the System or the Remote Access Services or any part thereof become, or in State Street's opinion be likely to become, the subject of a claim of infringement or the like under any applicable patent or copyright or trade secret laws, State Street shall have the right, at State Street's sole option, to (i) procure for the Customer the right to continue using the System or the Remote Access Services, (ii) replace or modify the System or the Remote Access Services so that the System or the Remote Access Services becomes noninfringing, or (iii) terminate this Addendum without further obligation. Termination Either party to the Custodian Agreement may terminate this Addendum (i) for any reason by giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to the Customer or thirty (30) days' notice in the case of notice from the Customer to State Street of termination, or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. This Addendum shall in any event terminate within ninety (90) days after the termination of the Custodian Agreement. In the event of termination, the Customer will return to State Street all copies of documentation and other confidential information in its possession or in the possession of its Authorized Designees. The foregoing provisions with respect to confidentiality and infringement will survive termination for a period of three (3) years. Miscellaneous This Addendum and the exhibits hereto constitute the entire understanding of the parties to the Custodian Agreement with respect to access to the System and the Remote Access Services. This Addendum cannot be modified or altered except in a writing duly executed by each of State Street and the Customer and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. By its execution of the Custodian Agreement, the Customer accepts responsibility for its and its Authorized Designees' compliance with the terms of this Addendum. iii EXHIBIT A TO REMOTE ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT IN~SIGHT(SM) System Product Description In~Sight(SM) provides bilateral information delivery, interoperability, and on-line access to State Street. In~Sight(SM) allows users a single point of entry into State Street's diverse systems and applications. Reports and data from systems such as Investment Policy Monitor(SM), Multicurrency Horizon(SM), Securities Lending, Performance & Analytics, and Electronic Trade Delivery can be accessed through In~Sight(SM). This Internet-enabled application is designed to run from a Web browser and perform across low-speed data lines or corporate high-speed backbones. In~Sight(SM) also offers users a flexible toolset, including an ad-hoc query function, a custom graphics package, a report designer, and a scheduling capability. Data and reports offered through In~Sight(SM) will continue to increase in direct proportion with the customer roll out, as it is viewed as the information delivery system will grow with State Street's customers. iv EX-99.14.1 4 b43477lgexv99w14w1.txt CONSENT OF INDEPENDENT AUDITORS ERNST & YOUNG Exhibit 14.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Financial Highlights" in the Prospectus for the Galaxy Growth Fund II, one of the portfolios constituting The Galaxy Fund, and "Financial Statements" and "Auditors" in the Statement of Additional Information for the Galaxy Growth Fund II and to the incorporation by reference therein of our report dated December 11, 2001 with respect to those financial statements and financial highlights included in The Galaxy Fund Annual Report dated October 31, 2001, which Prospectus, Statement of Additional Information, and report are incorporated by reference in the Combined Prospectus and Proxy Statement included in this Registration Statement on Form N-14 of the Columbia Special Fund, Inc. We further consent to the references to us in paragraph 4.1(f) of "Appendix A - Agreement and Plan of Reorganization" in such Combined Prospectus and Proxy Statement. ERNST & YOUNG LLP Boston, Massachusetts July 3, 2002 EX-99.14.2 5 b43477lgexv99w14w2.txt CONSENT OF INDEPENDENT ACCOUNTANTS (PWC) EXHIBIT 14.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus and Proxy Statement and Statement of Additional Information constituting parts of this Registration Statement on Form N-14 (the "Registration Statement") of our report dated October 15, 2001, relating to the financial statements and financial highlights appearing in the August 31, 2001 Annual Reports to Shareholders of Liberty Intermediate Government Fund and Liberty Federal Securities Fund, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectuses and "Independent Accountants of the Funds" in the Statement of Additional Information of Liberty Intermediate Government Fund and Liberty Federal Securities Fund dated January 1, 2002, which have also been incorporated by reference into the Registration Statement. PricewaterhouseCoopers LLP Boston, Massachusetts July 3, 2002 EX-99.14.3 6 b43477lgexv99w14w3.txt CONSENT OF INDEPENDENT ACCOUNTANTS (PWC, PORTLAND) Exhibit 14.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus and Proxy Statement and Statement of Additional Information constituting parts of this Registration Statement on Form N-14 (the "Registration Statement") of our report dated February 8, 2002, relating to the financial statements and financial highlights appearing in the December 31, 2001 Annual Report to Shareholders of the Columbia Special Fund, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and "Accounting Services and Financial Statements" in the Statement of Additional Information of Columbia Special Fund, Inc. dated February 25, 2002, which have also been incorporated by reference into the Registration Statement. PricewaterhouseCoopers LLP Portland, Oregon July 3, 2002 EX-99.16 7 b43477lgexv99w16.txt POWER OF ATTORNEY EXHIBIT 16 POWER OF ATTORNEY I, the undersigned Director of each of Columbia Growth Fund, Inc., Columbia International Stock Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Special Fund, Inc. and Columbia Strategic Value Fund, Inc. (each a "Company"), hereby severally constitute and appoint Jeff Curtis and Mark Wentzien, and each of them singly, my true and lawful attorneys, with full power to them and each of them, to sign for me, and in my name and in the capacities indicated below, the Registration Statements on Form N-14 of each Company and any and all amendments (including post-effective amendments) to said Registration Statements and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto my said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS my hand on the date set forth below. /s/ J. JERRY INSKEEP, JR. - -------------------------------------------- J. Jerry Inskeep, Jr., Chairman and Director Dated: June 24, 2002 POWER OF ATTORNEY I, the undersigned Director of each of Columbia Growth Fund, Inc., Columbia International Stock Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Special Fund, Inc. and Columbia Strategic Value Fund, Inc. (each a "Company"), hereby severally constitute and appoint Jeff Curtis and Mark Wentzien, and each of them singly, my true and lawful attorneys, with full power to them and each of them, to sign for me, and in my name and in the capacities indicated below, the Registration Statements on Form N-14 of each Company and any and all amendments (including post-effective amendments) to said Registration Statements and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto my said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS my hand on the date set forth below. /s/ JAMES C. GEORGE - -------------------------------------------- James C. George, Director Dated: June 24, 2002 POWER OF ATTORNEY I, the undersigned Director of each of Columbia Growth Fund, Inc., Columbia International Stock Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Special Fund, Inc. and Columbia Strategic Value Fund, Inc. (each a "Company"), hereby severally constitute and appoint Jeff Curtis and Mark Wentzien, and each of them singly, my true and lawful attorneys, with full power to them and each of them, to sign for me, and in my name and in the capacities indicated below, the Registration Statements on Form N-14 of each Company and any and all amendments (including post-effective amendments) to said Registration Statements and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto my said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS my hand on the date set forth below. /s/ PATRICK J. SIMPSON - -------------------------------------------- Patrick J. Simpson, Director Dated: June 25, 2002 POWER OF ATTORNEY I, the undersigned Director of each of Columbia Growth Fund, Inc., Columbia International Stock Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Special Fund, Inc. and Columbia Strategic Value Fund, Inc. (each a "Company"), hereby severally constitute and appoint Jeff Curtis and Mark Wentzien, and each of them singly, my true and lawful attorneys, with full power to them and each of them, to sign for me, and in my name and in the capacities indicated below, the Registration Statements on Form N-14 of each Company and any and all amendments (including post-effective amendments) to said Registration Statements and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto my said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS my hand on the date set forth below. /s/ RICHARD L. WOOLWORTH - ------------------------------------ Richard L. Woolworth, Director Dated: June 24, 2002 EX-99.17.4 8 b43477lgexv99w17w4.txt FORM OF PROXY CARD & INSERT - GALAXY GROWTH EXHIBIT 17.4 PLEASE VOTE PROMPTLY ********************************* Your vote is important, no matter how many shares you own. Please vote on the reverse side of this proxy card and sign in the space(s) provided. Return your completed proxy card in the enclosed envelope today. You may receive additional proxies for other accounts. These are not duplicates; you should sign and return each proxy card in order for your votes to be counted. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The signers of this proxy hereby appoint each of Joseph R. Palombo, Jean S. Loewenberg, Joseph T. Turo, Russell L. Kane, and Vincent P. Pietropaolo proxies of the signers, with power of substitution, to vote at the Special Meeting of Shareholders to be held at Boston, Massachusetts, on [_____}, [______ __], 2002, and at any adjournments, as specified herein and in accordance with their best judgment on any other business that may properly come before this meeting. The proxies will cast votes according to the number of shares of your Galaxy Fund which the undersigned may be entitled to vote with respect to the proposals set forth on the attached card, in accordance with the specification indicated, if any, and with all the powers which the undersigned would possess if personally present. The undersigned hereby revokes any prior proxy to vote at such meeting, and hereby confirms all that said attorneys and proxies, or either of them, may lawfully do by virtue thereof. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND THE COMBINED PROSPECTUS/PROXY STATEMENT DATED AUGUST [___], 2002. AFTER CAREFUL REVIEW, THE BOARD OF TRUSTEES UNANIMOUSLY HAS RECOMMENDED A VOTE "FOR" ALL MATTERS. GALAXY LOGO - -------------------------------------------- GALAXY GROWTH FUND II - -------------------------------------------- Please be sure to sign and date this proxy. Date ----------- - ----------------------------------- ---------------------------------- Shareholder sign here Co-owner sign here THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER. THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL: 1. Proposal to approve the [ ] FOR [ ] AGAINST Agreement and Plan of Reorganization with respect [ ] ABSTAIN to the acquisition of the Galaxy Growth Fund II by the Columbia Special Fund, Inc. (Item 1 of the Notice) MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT [ ] PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners should each sign personally. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DETACH CARD DETACH CARD VOTE YOUR PROXY - ELECTRONICALLY! The enclosed proxy statement provides details on important issues affecting your funds. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. You can vote your proxies over the Internet or by telephone. Both ways are easy and confidential. A REMINDER - if you vote by Internet or telephone, you should NOT mail your proxy card. INTERNET VOTING: - Read the proxy statement. - With your proxy card available, go to WWW.GALAXYFUNDS.COM. - Log on to the shareholder site. Click on the proxy link and follow the instructions provided. TELEPHONE VOTING: - Read the proxy statement. - With your proxy card available, call [877-779-8683] (toll free). - When prompted, enter the voter control number located on the upper left corner of your proxy card. - Follow the instructions provided. Internet and telephone voting are available 24 hours a day, seven days a week. If you have any questions regarding the meeting agenda and the execution of proxies, call one of our representatives at [866-274-6822] (toll free) from 9:00 am to 11:00 pm (Eastern time) Monday through Friday, and Saturdays from 12:00 pm to 6:00 pm (Eastern time). [GALAXY FUNDS LOGO HERE] EX-99.17.5 9 b43477lgexv99w17w5.txt FORM OF PROXY CARD & INSERT - STEIN ROE CAP OPPS EXHIBIT 17.5 PLEASE VOTE PROMPTLY ********************************* Your vote is important, no matter how many shares you own. Please vote on the reverse side of this proxy card and sign in the space(s) provided. Return your completed proxy card in the enclosed envelope today. You may receive additional proxies for other accounts. These are not duplicates; you should sign and return each proxy card in order for your votes to be counted. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The signers of this proxy hereby appoint each of Joseph R. Palombo, Jean S. Loewenberg, Joseph T. Turo, Russell L. Kane, and Vincent P. Pietropaolo proxies of the signers, with power of substitution, to vote at the Special Meeting of Shareholders to be held at Boston, Massachusetts, on [_____}, [______ __], 2002, and at any adjournments, as specified herein and in accordance with their best judgment on any other business that may properly come before this meeting. AFTER CAREFUL REVIEW, THE BOARD OF TRUSTEES UNANIMOUSLY HAS RECOMMENDED A VOTE "FOR" ALL MATTERS. STEIN ROE LOGO - -------------------------------------------- STEIN ROE CAPITAL OPPORTUNITIES FUND - --------------------------------------------- Please be sure to sign and date this proxy. Date ------------ - ----------------------------------- --------------------------------- Shareholder sign here Co-owner sign here THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER. THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL: 1. Proposal to approve the [ ] FOR [ ] AGAINST Agreement and Plan of Reorganization with respect [ ] ABSTAIN to the acquisition of the Stein Roe Capital Opportunities Fund (including Class S and Liberty Capital Opportunities Fund Class A) by the Columbia Special Fund, Inc. (Item 2 of the Notice) MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT [ ] PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners should each sign personally. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DETACH CARD DETACH CARD VOTE YOUR PROXY - ELECTRONICALLY! The enclosed proxy statement provides details on important issues affecting your funds. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. You can vote your proxies over the Internet or by telephone. Both ways are easy and confidential. A REMINDER - if you vote by Internet or telephone, you should NOT mail your proxy card. INTERNET VOTING: - Read the proxy statement. - With your proxy card available, go to WWW.STEINROE.COM. - Log on to the shareholder site. Click on the proxy link and follow the instructions provided. TELEPHONE VOTING: - Read the proxy statement. - With your proxy card available, call [877-779-8683] (toll free). - When prompted, enter the voter control number located on the upper left corner of your proxy card. - Follow the instructions provided. Internet and telephone voting are available 24 hours a day, seven days a week. If you have any questions regarding the meeting agenda and the execution of proxies, call one of our representatives at 866-274-6822 (toll free) from 9:00 am to 11:00 pm (Eastern time) Monday through Friday, and Saturdays from 12:00 pm to 6:00 pm (Eastern time). [STEIN ROE LOGO HERE] LIBERTY LOGO - -------------------------------------------- LIBERTY CAPITAL OPPORTUNITIES FUND CLASS A - -------------------------------------------- Please be sure to sign and date this proxy. Date ---------- - ----------------------------------- ---------------------------------- Shareholder sign here Co-owner sign here THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER. THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL: 1. Proposal to approve the [ ] FOR [ ] AGAINST Agreement and Plan of Reorganization with respect [ ] ABSTAIN to the acquisition of the Stein Roe Capital Opportunities Fund (including Class S and Liberty Capital Opportunities Fund Class A) by the Columbia Special Fund, Inc. (Item 2 of the Notice) MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT [ ] PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners should each sign personally. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DETACH CARD DETACH CARD VOTE YOUR PROXY - ELECTRONICALLY! The enclosed proxy statement provides details on important issues affecting your funds. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. You can vote your proxies over the Internet or by telephone. Both ways are easy and confidential. A REMINDER - if you vote by Internet or telephone, you should NOT mail your proxy card. INTERNET VOTING: - Read the proxy statement. - With your proxy card available, go to WWW.LIBERTYFUNDS.COM. - Log on to the shareholder site. Click on the proxy link and follow the instructions provided. TELEPHONE VOTING: - Read the proxy statement. - With your proxy card available, call [877-779-8683] (toll free). - When prompted, enter the voter control number located on the upper left corner of your proxy card. - Follow the instructions provided. Internet and telephone voting are available 24 hours a day, seven days a week. If you have any questions regarding the meeting agenda and the execution of proxies, call one of our representatives at 866-274-6822 (toll free) from 9:00 am to 11:00 pm (Eastern time) Monday through Friday, and Saturdays from 12:00 pm to 6:00 pm (Eastern time). [LIBERTY FUNDS SERVICES, INC. LOGO HERE] EX-99.17.6 10 b43477lgexv99w17w6.txt FORM OF PROXY CARD & INSERT - LIBERTY MIDCAP GROW EXHIBIT 17.6 PLEASE VOTE PROMPTLY ********************************* Your vote is important, no matter how many shares you own. Please vote on the reverse side of this proxy card and sign in the space(s) provided. Return your completed proxy card in the enclosed envelope today. You may receive additional proxies for other accounts. These are not duplicates; you should sign and return each proxy card in order for your votes to be counted. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The signers of this proxy hereby appoint each of Joseph R. Palombo, Jean S. Loewenberg, Joseph T. Turo, Russell L. Kane, and Vincent P. Pietropaolo proxies of the signers, with power of substitution, to vote at the Special Meeting of Shareholders to be held at Boston, Massachusetts, on [_____}, [______ __], 2002, and at any adjournments, as specified herein and in accordance with their best judgment on any other business that may properly come before this meeting. AFTER CAREFUL REVIEW, THE BOARD OF TRUSTEES UNANIMOUSLY HAS RECOMMENDED A VOTE "FOR" ALL MATTERS. LIBERTY LOGO - -------------------------------------------- LIBERTY MIDCAP GROWTH FUND - -------------------------------------------- Please be sure to sign and date this proxy. Date --------------- - ------------------------------ --------------------------------- Shareholder sign here Co-owner sign here THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER. THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL: 1. Proposal to approve the [ ] FOR [ ] AGAINST Agreement and Plan of Reorganization with respect [ ] ABSTAIN to the acquisition of the Liberty Midcap Growth Fund (including Classes A, B, C and Z and Stein Roe Midcap Growth Fund Class S) by the Columbia Special Fund, Inc. (Item 3 of the Notice) MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT [ ] PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners should each sign personally. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DETACH CARD DETACH CARD VOTE YOUR PROXY - ELECTRONICALLY! The enclosed proxy statement provides details on important issues affecting your funds. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. You can vote your proxies over the Internet or by telephone. Both ways are easy and confidential. A REMINDER - if you vote by Internet or telephone, you should NOT mail your proxy card. INTERNET VOTING: - Read the proxy statement. - With your proxy card available, go to WWW.LIBERTYFUNDS.COM. - Log on to the shareholder site. Click on the proxy link and follow the instructions provided. TELEPHONE VOTING: - Read the proxy statement. - With your proxy card available, call [877-779-8683] (toll free). - When prompted, enter the voter control number located on the upper left corner of your proxy card. - Follow the instructions provided. Internet and telephone voting are available 24 hours a day, seven days a week. If you have any questions regarding the meeting agenda and the execution of proxies, call one of our representatives at 866-274-6822 (toll free) from 9:00 am to 11:00 pm (Eastern time) Monday through Friday, and Saturdays from 12:00 pm to 6:00 pm (Eastern time). [LIBERTY FUNDS SERVICES, INC. LOGO HERE] STEIN ROE LOGO - -------------------------------------------- STEIN ROE MIDCAP GROWTH FUND CLASS S - -------------------------------------------- Please be sure to sign and date this proxy. Date ----------- - -------------------------------- -------------------------------- Shareholder sign here Co-owner sign here THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER. THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL: 1. Proposal to approve the [ ] FOR [ ] AGAINST Agreement and Plan of Reorganization with respect [ ] ABSTAIN to the acquisition of the Liberty Midcap Growth Fund (including Classes A, B, C and Z and Stein Roe Midcap Growth Fund Class S) by the Columbia Special Fund, Inc. (Item 3 of the Notice) MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT [ ] PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners should each sign personally. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DETACH CARD DETACH CARD VOTE YOUR PROXY - ELECTRONICALLY! The enclosed proxy statement provides details on important issues affecting your funds. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. You can vote your proxies over the Internet or by telephone. Both ways are easy and confidential. A REMINDER - if you vote by Internet or telephone, you should NOT mail your proxy card. INTERNET VOTING: - Read the proxy statement. - With your proxy card available, go to WWW.STEINROE.COM. - Log on to the shareholder site. Click on the proxy link and follow the instructions provided. TELEPHONE VOTING: - Read the proxy statement. - With your proxy card available, call [877-779-8683] (toll free). - When prompted, enter the voter control number located on the upper left corner of your proxy card. - Follow the instructions provided. Internet and telephone voting are available 24 hours a day, seven days a week. If you have any questions regarding the meeting agenda and the execution of proxies, call one of our representatives at 866-274-6822 (toll free) from 9:00 am to 11:00 pm (Eastern time) Monday through Friday, and Saturdays from 12:00 pm to 6:00 pm (Eastern time). [STEIN ROE LOGO HERE] -----END PRIVACY-ENHANCED MESSAGE-----