-----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, LumSXxlxrDVE87GL+agd8y2EN6mKGftlBx+DdjE02xzi03t36E9Rb/ct/xhajJ1B +MRlW0TWQb+JP2jlzxxD1A== 0000950149-02-000368.txt : 20020414 0000950149-02-000368.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950149-02-000368 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020225 EFFECTIVENESS DATE: 20020225 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-99207 FILM NUMBER: 02557108 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 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: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04362 FILM NUMBER: 02557109 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 485BPOS 1 f78948e485bpos.txt COLUMBIA SPECIAL FUND FORM N-1 PEA 19 Reg. Nos. 2-99207/811-4362 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 19 [ X ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 20 [ X ] (Check appropriate box or boxes.) COLUMBIA SPECIAL FUND, INC. (Exact Name of Registrant as Specified in Charter) 1301 SW Fifth Avenue, PO Box 1350, Portland, Oregon 97207 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (503) 222-3600 Jeff B. Curtis 1301 SW Fifth Avenue, PO Box 1350, Portland, Oregon 97207 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. It is proposed that this filing will become effective (Check appropriate box) X immediately upon filing pursuant to paragraph (b) ___ ___ on __________ pursuant to paragraph (b) ___ 60 days after filing pursuant to paragraph (a)(1) ___ on __________ pursuant to paragraph (a)(1) ___ 75 days after filing pursuant to paragraph (a)(2) ___ on __________ pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: ___ this post-effective amendment designates a new effective date for a previously filed post-effective amendment. [Bird in Circle Symbol] COLUMBIA FUNDS INVESTMENT GUIDE AND PROSPECTUS February 25, 2002 COLUMBIA COMMON STOCK FUND COLUMBIA GROWTH FUND COLUMBIA INTERNATIONAL STOCK FUND COLUMBIA SPECIAL FUND COLUMBIA SMALL CAP FUND COLUMBIA REAL ESTATE EQUITY FUND COLUMBIA TECHNOLOGY FUND COLUMBIA STRATEGIC VALUE FUND COLUMBIA BALANCED FUND COLUMBIA SHORT TERM BOND FUND COLUMBIA FIXED INCOME SECURITIES FUND COLUMBIA NATIONAL MUNICIPAL BOND FUND COLUMBIA OREGON MUNICIPAL BOND FUND COLUMBIA HIGH YIELD FUND COLUMBIA DAILY INCOME COMPANY DEAR INVESTOR: We are pleased to present the Columbia Funds 2002 Prospectus. Whether you want to open a new account or add to an existing account, all you need to know about investing with Columbia is available in the following pages. We'd like to call your attention to Columbia Small Cap Fund, which has announced its intention to close to new investors on March 1, 2002. The Fund is closing in an effort to preserve the manager's ability to deliver competitive performance. Once assets reach a significant level, it becomes more challenging for an investment manager to run a small cap fund effectively. Since small cap companies tend to have small trading volumes, it can be difficult to buy and sell large blocks of stock without causing erratic or abrupt price movements. The Fund has grown steadily since its inception in 1996, thanks to competitive performance and strong cash flows. Consequently, the Fund's Board of Directors and Investment Team believe that closing the Fund is in the best interest of our current shareholders. For details about the Fund's closure and exceptions for accepting new investments, please refer to page 54 of the prospectus. You may also find more information, as well as other news about the Columbia Funds, at www.columbiafunds.com. As always, Columbia seeks to provide shareholders with a broad range of investment opportunities. We are committed to pursuing above-average, long-term investment returns while managing downside risk. To gain a better understanding of the Funds' investment goals and strategies, as well as performance history and expenses, we encourage you to review the prospectus carefully. If you have any questions, please call 1-800-547-1707, and an Investor Services Representative would be happy to assist you. Thank you for your interest in Columbia Funds. Sincerely, /s/ Thomas L. Thomsen /s/ Jeff B. Curtis - ------------------------------------ --------------------------------- Thomas L. Thomsen Jeff B. Curtis Chairman and Chief Executive Officer President Columbia Funds Management Company Columbia Funds Management Company Not part of Prospectus 1 Not part of Prospectus THE COLUMBIA FAMILY of NO-LOAD FUNDS - -------------------------------------------------------------------------------- By sharing the cost of paying for experienced money managers, mutual fund shareholders receive professional financial management at a lower cost. INTRODUCING COLUMBIA FUNDS Columbia Funds are managed for high quality investment results with a commitment to personalized service and low cost. At Columbia, you'll pay no commissions or 12b-1 fees that reduce your investment return. That means all your money goes to work for you. With over 30 years of serving savvy investors, Columbia was one of the first investment managers to provide no-load mutual funds. Today, we are proud to offer a family of 15 mutual funds designed to meet a wide range of investment objectives. THE BENEFITS OF MUTUAL FUND INVESTING A mutual fund offers many advantages that are not available to individual investors, such as professional financial management, greater convenience, and lower cost. If you were to invest directly in all the securities held by your fund, for example, the recordkeeping and tax reporting would be overwhelming. But with mutual funds, shareholders essentially hire a team of experts to manage and track their money. These experts range from the individual analysts who study and research the securities held by your fund, to the accountants who measure your fund's performance and prepare your financial reports. This approach to investing gives all shareholders of a mutual fund the kind of professional services they desire, at a cost they can afford. Best of all, mutual funds, by their nature, are diversified investment vehicles. Mutual funds generally invest among many different sectors and securities simultaneously, which reduces the risk of investing in a single security and provides more diversification then any investor could hope to achieve on his or her own. INTRODUCING COLUMBIA FUNDS No matter what your investment objective, risk tolerance or time frame, you can build a portfolio to effectively meet your needs with Columbia Funds. The attached prospectus describes the Funds in full detail, helping you meet your investment objectives today and in the future. 2 Not part of Prospectus INVESTMENT REWARDS - -------------------------------------------------------------------------------- [LINE GRAPH OF A ONE-DOLLAR INVESTMENT 1926-2001] [TABLE OF AVERAGE ANNUAL TOTAL RETURNS 1926-2001] Since stocks have historically provided the highest investment returns compared to other assets, they may provide you with the best opportunity for long-term growth. SMALL COMPANY STOCKS........................................ $7,860.05 12.5% LARGE COMPANY STOCKS........................................ $2,279.13 10.7% LONG-TERM GOVERNMENT BONDS.................................. $ 50.66 5.3% U.S. TREASURY BILLS......................................... $ 17.20 3.8% INFLATION................................................... $ 9.87 3.1%
Generally speaking, the more risk you are willing to accept, the greater your potential for higher returns. As the chart below illustrates, stocks have experienced the greatest long-term investment results, but with a higher degree of volatility or short-term price risk. SMALL COMPANY STOCKS are represented by the fifth capitalization quintile of stocks on the New York Stock Exchange for the period 1926 through 1981, and the performance of the Dimensional Fund Advisors (DFA) Small Company Fund thereafter. LARGE COMPANY STOCKS are represented by the Standard & Poor's 500 Stock Index, which is an unmanaged index generally considered to be representative of the U.S. stock market. LONG-TERM GOVERNMENT BONDS are represented by a one-bond portfolio with a maturity near 20 years. Long-term government bonds are backed by the full faith and credit of the U.S. Government. TREASURY BILLS are represented by rolling over each month, a one-bill portfolio containing, at the beginning of each month, the bill having the shortest maturity not less than one month. Treasury Bills are generally considered to be representative of cash-equivalent investments. INFLATION is represented by the Consumer Price Index. Past performance, of course, cannot guarantee future results, but many investors find it helpful in making their investment decisions. These indices are not available for direct investment by investors, and their performance is not intended to imply past or future performance of any investment, including Columbia Funds. Source: Stocks, Bonds, Bills and Inflation(R) 2002 Yearbook, (C)2002 Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and Sinquefield. Used with permission. All rights reserved. 3 Not part of Prospectus INVESTMENT RISK - -------------------------------------------------------------------------------- INTRODUCING COLUMBIA FUNDS Investing involves risk in order to achieve return. Mutual fund investing can involve different kinds of risk depending upon your personal circumstances and the type of fund in which you invest. With a thorough understanding of the risks associated with your funds, you can build a portfolio that best meets your needs while improving your chances for greater return. -- MARKET/DOWNSIDE RISK -- Market risk refers to the possibility of loss to your investment. Economic factors such as recession, inflation and changing interest rates can all influence stock and bond markets, thus affecting the value of your investment. Stock prices may fluctuate in response to the activities and financial prospects of the issuing company. The degree to which your investment fluctuates determines how volatile it is. As a general rule, the greater the volatility of your investment, the greater its potential for higher long-term returns. -- INTEREST RATE RISK -- Interest rate risk refers to the effect that fluctuations in interest rates have on existing bonds. Since bonds are issued with a fixed rate of interest, their day-to-day value fluctuates in response to changes in current interest rates. When interest rates go up, the value of an existing bond goes down because it is paying a lower rate than what investors could obtain in the current market. When interest rates go down, existing bonds increase in value because they are paying a higher rate than newly issued bonds. -- CREDIT RISK -- Credit risk refers to the ability of a bond issuer to meet its principal and interest payments when due. If a company that issues a bond experiences financial difficulty or fails, the bondholders may not be paid the promised interest or the full amount of their principal. In exchange for greater safety, however, higher quality bonds are issued with a lower interest rate. Likewise, lower quality bonds generally pay a higher interest rate to compensate investors for greater credit risk. -- INFLATION RISK -- Inflation poses a risk to investors who invest exclusively in fixed income instruments, such as bond or money market funds, because there is a chance that the returns on these instruments may not keep pace with inflation. Inflation represents the rising cost of goods and services over time. -- INTERNATIONAL RISK -- Investing outside the United States adds another element of risk to your portfolio. While foreign markets offer investment opportunity and diversification, they may be less mature and less regulated than U.S. financial markets. The issuer of an international security may be subject to greater political or economic uncertainty, and foreign securities can also gain or lose value when converted from one currency to another. All these factors may affect volatility and returns of a mutual fund investing in foreign securities. 4 Not part of Prospectus THE KEYS TO SUCCESSFUL INVESTING - -------------------------------------------------------------------------------- The key to successful investing is to balance the amount of risk in your portfolio with your desired investment objective, your investment time frame, and your personal tolerance for risk. MUTUAL FUND SHARES ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL ENTITY; ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK; AND INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. No matter what investment you choose, there are never any guarantees about your ultimate performance results. But there are strategies you can follow to help manage risk, improve your chances for accumulating wealth and pursue your financial goals with greater confidence. -- DIVERSIFY -- It is possible to offset the risks of one type of investment by simultaneously spreading your dollars among other investments. In this way, you balance the greater price volatility of stocks, for example, with the more stable, income-generating nature of bonds. This is called diversification. Diversification also can be accomplished by investing broadly within a particular type of asset, such as investing in several different stock funds at one time -- like a large stock fund, a small stock fund and an international stock fund. -- STAY THE COURSE -- To benefit from all that a diversified investment portfolio has to offer, it's best to focus on the long term. Attempting to chase returns through frequent buying and selling of fund shares can be a risky business. Investors who seek "home runs" with their investments put themselves at risk to "strike outs." This kind of investment strategy can take its toll on your long-term performance results. Investors with a long-term horizon -- at least five years -- should be less concerned about short-term volatility and should be better equipped to ride out the market's normal ups and downs. -- INVEST REGULARLY -- Another effective way to maximize your portfolio's growth potential and manage risk is to invest regularly, regardless of what is happening in the markets. As prices go down, your regular investment will buy more shares. When prices rise, you will buy less shares, but the shares you already own will increase in value. This well-known technique is called dollar cost averaging. Of course, a program of regular investing cannot guarantee a profit or protect against loss in a declining market, but it can help you develop the necessary discipline to build wealth for the future. TABLE OF CONTENTS FEBRUARY 25, 2002 PROSPECTUS - -------------------------------------------------------------------------------- TABLE OF CONTENTS INTRODUCTION 1 A TEAM APPROACH TO INVESTING 2 RISK OF INVESTING IN MUTUAL FUNDS - ------------------------------------------------------------------------------ INFORMATION 2 STOCK FUND INVESTING ABOUT 3 BOND FUND INVESTING COLUMBIA FUNDS 4 COLUMBIA COMMON STOCK FUND 7 COLUMBIA GROWTH FUND 10 COLUMBIA INTERNATIONAL STOCK FUND 13 COLUMBIA SPECIAL FUND 16 COLUMBIA SMALL CAP FUND* 19 COLUMBIA REAL ESTATE EQUITY FUND 22 COLUMBIA TECHNOLOGY FUND 26 COLUMBIA STRATEGIC VALUE FUND 29 COLUMBIA BALANCED FUND 32 COLUMBIA SHORT TERM BOND FUND 35 COLUMBIA FIXED INCOME SECURITIES FUND 38 COLUMBIA NATIONAL MUNICIPAL BOND FUND 41 COLUMBIA OREGON MUNICIPAL BOND FUND 44 COLUMBIA HIGH YIELD FUND 47 COLUMBIA DAILY INCOME COMPANY - ------------------------------------------------------------------------------ MANAGEMENT 49 COLUMBIA INVESTMENT TEAM - ------------------------------------------------------------------------------ INVESTOR 52 INSTRUCTIONS FOR ACCOUNTS SERVICES 54 PURCHASING SHARES 55 SELLING (REDEEMING) SHARES 56 IMPORTANT FUND POLICIES 60 DISTRIBUTIONS AND TAXES - ------------------------------------------------------------------------------ MORE ABOUT 63 PORTFOLIO SECURITIES THE FUNDS 66 MORE ABOUT RISKS
*Effective March 1, 2002, the Fund is closed to new investors. For information, see "Purchasing Shares" on page 54. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed on the adequacy of this Prospectus. Any representation to the contrary is a criminal offense. THE COLUMBIA FAMILY of NO-LOAD FUNDS COLUMBIA COMMON STOCK FUND - -------------------------------------------------------------------------------- COLUMBIA GROWTH FUND - -------------------------------------------------------------------------------- COLUMBIA INTERNATIONAL STOCK FUND - -------------------------------------------------------------------------------- COLUMBIA SPECIAL FUND - -------------------------------------------------------------------------------- COLUMBIA SMALL CAP FUND - -------------------------------------------------------------------------------- COLUMBIA REAL ESTATE EQUITY FUND - -------------------------------------------------------------------------------- COLUMBIA TECHNOLOGY FUND - -------------------------------------------------------------------------------- COLUMBIA STRATEGIC VALUE FUND - -------------------------------------------------------------------------------- COLUMBIA BALANCED FUND - -------------------------------------------------------------------------------- COLUMBIA SHORT TERM BOND FUND - -------------------------------------------------------------------------------- COLUMBIA FIXED INCOME SECURITIES FUND - -------------------------------------------------------------------------------- COLUMBIA NATIONAL MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- COLUMBIA OREGON MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- COLUMBIA HIGH YIELD FUND - -------------------------------------------------------------------------------- COLUMBIA DAILY INCOME COMPANY - -------------------------------------------------------------------------------- INTRODUCTION - -------------------------------------------------------------------------------- Individual analysts track specific market sectors or industries, identifying securities within those areas that are expected to reward shareholders. INTRODUCTION This Prospectus is designed to provide you with important information about investing in Columbia Funds. Each Fund is presented separately with descriptions of the following: GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] --------------------------------------------- INVESTMENT RISKS [FIRE SYMBOL] --------------------------------------------- WHO SHOULD INVEST? [FACES SYMBOL] --------------------------------------------- HISTORICAL PERFORMANCE [GRAPH SYMBOL] --------------------------------------------- EXPENSES [PERCENT SIGN SYMBOL] --------------------------------------------- FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] ---------------------------------------------
For additional information about the strategies and risks of the Funds, please refer to "More About the Funds" in the back of this Prospectus. A TEAM APPROACH TO INVESTING Columbia takes a unique approach to investing, where all Funds are managed using the expertise of the entire Investment Team. Through this team effort, individual analysts and portfolio managers have responsibility for tracking specific sectors or industries of the market, identifying securities within those areas that are expected to reward shareholders. This investment strategy is an integral part of security selection for all Funds. As part of its active management, Columbia's Investment Team meets weekly to review and discuss the dynamics of the overall investment and economic environment, taking into account broad indicators such as economic growth, inflation, interest rates, monetary policy, demographics and money flows. This evaluation leads to the development of broad investment themes, which create a framework for industry and stock selection, as well as the selection of market capitalizations for certain funds. Investment themes are based on the review and discovery of changes in the environment that may not yet be widely recognized or understood by the rest of the investment community. Themes are also developed based on secular trends that the Investment Team sees unfolding over a long period of time. 1 For the equity investment team, this "top down" overview is combined with a thorough review of market sectors and securities within those sectors. This process includes a bottom-up review of individual companies. The equity investment team looks at factors such as financial condition, quality of management, industry dynamics, earnings growth, profit margins, sales trends, dividend payment history and potential, price/earnings and price/book ratios, as well as investments in research and development. The fixed income team uses a top down approach to determine sector emphasis between different types of fixed income instruments. Like the equity investment team, Columbia's fixed income team is made up of various specialists who have responsibility for analyzing and selecting particular securities. The fixed income team works to appropriately shift emphasis between levels of quality, maturity, coupon and types of debt instruments based on their relative attractiveness. The fixed income team uses a proprietary horizon analysis model to gauge the performance of different bonds and the portfolios under various interest rate scenarios. Also, bottom-up security analysis is undertaken to consider the credit worthiness of issuers, particularly for bonds with below investment-grade credit ratings. RISK OF INVESTING IN MUTUAL FUNDS Mutual funds are not bank deposits and are not insured or endorsed by any bank, government agency or the FDIC. The value of your investment will likely fluctuate. Because you could lose money by investing in mutual funds, please be sure to read all the risk disclosure carefully before investing. The description of each Fund contains a discussion of principal investment risks, and a more detailed discussion of risks is available beginning on page 66, "More about Risks." INFORMATION ABOUT COLUMBIA FUNDS - -------------------------------------------------------------------------------- STOCK FUND INVESTING Columbia's stock funds invest principally in the stocks of public companies. Companies sell shares of stock to help finance their business. Returns on stocks are earned through a combination of dividends paid on each share and any increase or decrease in the market price of the shares. The smaller the market capitalization of a company (the total value of a company's outstanding stock), generally the less likely it will pay dividends. That's because companies with small market capitalizations tend to use excess earnings to help fund growth. The investment strategy of a number of the equity funds described in this Prospectus is shaped, in part, by the market capitalization of the companies in which the Funds may invest. 2 INFORMATION ABOUT COLUMBIA FUNDS Generally, stock fund returns fluctuate more than bond and money market fund returns, but stocks historically have offered investors the most long-term growth. Columbia's stock funds vary in their level of risk or volatility, depending upon the types and average market capitalization of the stocks they hold. As a general rule, the smaller a company's market cap, the more volatile its stock price is likely to be. BOND FUND INVESTING Bonds are often called fixed income investments because they earn a fixed rate of interest. Bonds are issued by corporations as well as by local, state and federal governments and their agencies to raise money. The issuer of a bond is borrowing money from investors. A bond represents a promise to pay back this money (referred to as principal or face amount) at a specified time (maturity date), plus a specified amount of interest (coupon). Investment return on a bond is earned through the payment of interest and any price appreciation or depreciation if the bond is sold before maturity. Most bonds pay interest every six months. Because bond funds consist of many bonds that are bought and sold on an ongoing basis, a bond fund investment does not have a maturity date and does not earn a fixed interest rate. In addition, the share price of a bond fund fluctuates daily to reflect the current value of all bonds in the fund. The maturities of all the bonds within a bond fund can be combined to determine its average maturity. Generally, the longer the average maturity of a bond fund portfolio, the more sensitive its net asset value to changes in interest rates. Another distinguishing characteristic of a bond fund is its average credit quality. Generally, the lower the credit quality of bonds in a portfolio, the more sensitive the fund's net asset value to the activities and financial prospects of the companies issuing the bonds, as well as to general economic and market conditions. While bonds have not generated as high an investment return as stocks over time, their returns are generally less volatile. 3 COLUMBIA COMMON STOCK FUND - ----------------------------------------------------------------------------- 4 GOAL AND STRATEGY [Man w/ telescope symbol] - -------------------------------------- The Fund seeks capital appreciation by investing, under normal market conditions, at least 80% of its assets in stocks of large-cap, well-established companies. Many of the Fund's stocks have a history of paying level or rising dividends and are expected to continue paying dividends. The Fund may also invest, to a limited extent, in foreign securities, including American Depositary Receipts. INVESTMENT RISKS [Fire Symbol] - ------------------------------------ This Fund has stock market risk, which means the Fund's stocks may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. You could lose money as a result of your investment. Sector risk refers to the chance that the Fund's returns could be hurt significantly by problems affecting a particular market sector. With a potentially significant portion of the Fund's total assets invested in technology stocks, sector risk may be high for the Fund. When the Fund invests in foreign issuers, its total return may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country. WHO SHOULD INVEST? [Faces Symbol] - ----------------------------------------- This Fund is most appropriate for: - - Long-term investors - - Investors seeking a large-cap fund to balance their bond or small- and mid-cap stock portfolios - - Those willing to accept short-term price fluctuations HISTORICAL PERFORMANCE [Graph Symbol] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table on page 5 compares Fund performance over time (before and after taxes) to a broad market index. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 9.99 1993 16.44 1994 2.06 1995 30.84 1996 20.71 1997 25.37 1998 26.28 1999 25.76 2000 -5.73 2001 -17.60
BEST QUARTER: 4Q '98 at 23.30% WORST QUARTER: 3Q '01 at -17.43% STOCK FUNDS 5 HISTORICAL PERFORMANCE (CONT.) [Graph Symbol] - ---------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Common Stock Fund -17.60% 9.11% 12.31% Return After Taxes on Distributions -17.72% 6.95% 9.92% Return After Taxes on Distributions and Sale of -10.70% 7.10% 9.57% Fund Shares - -------------------------------------------------- S&P 500 Index -11.88% 10.70% 12.93% (reflects no deductions for fees, expenses or taxes) - --------------------------------------------------
The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [Percent Sign Symbol] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.60% Distribution and/or Service (12b-1) Fees None Other Expenses 0.20% Total Annual Fund Operating Expenses 0.80%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $82 $255 $444 $990
COLUMBIA COMMON STOCK FUND (CONT.) 6 FINANCIAL HIGHLIGHTS [Money bag Symbol] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR......................... $24.34 $28.90 $24.40 $22.02 $19.26 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss).............................. 0.07 (0.01) 0.03 0.09 0.29 Net realized and unrealized gains (losses) on investments............................................. (4.35) (1.54) 6.25 5.68 4.58 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations.......................... (4.28) (1.55) 6.28 5.77 4.87 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income...................... (0.07) - (0.03) (0.13) (0.27) Distributions from capital gains.......................... (0.02) (3.01) (1.75) (3.26) (1.84) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions....................................... (0.09) (3.01) (1.78) (3.39) (2.11) NET ASSET VALUE, END OF YEAR............................... $19.97 $24.34 $28.90 $24.40 $22.02 TOTAL RETURN............................................... -17.60% -5.73% 25.76% 26.28% 25.37% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)..................... $681,397 $895,134 $959,910 $797,147 $783,906 Ratio of expenses to average net assets.................... 0.80% 0.75% 0.77% 0.80% 0.77% Ratio of net investment income (loss) to average net assets.................................................... 0.32% (0.05)% 0.09% 0.56% 1.37% Portfolio turnover rate.................................... 114% 104% 97% 141% 90%
COLUMBIA GROWTH FUND - ------------------------------------------------------------- STOCK FUNDS 7 GOAL AND STRATEGY [Man w/ telescope symbol] - -------------------------------------- The Fund seeks capital appreciation by investing, under normal market conditions, in stocks of companies expected to experience long-term, above average earnings growth. These companies, as compared to the overall market, tend to have attractive valuations, strong competitive positions within their industry groups and the ability to grow using internal resources. The Fund intends to focus on growth stocks, which generally trade with higher price/earnings ratios, reflecting investors' willingness to pay a higher share price for potentially steady or higher earnings growth. The Fund may also invest, to a limited extent, in foreign securities, including American Depositary Receipts. INVESTMENT RISKS [Fire Symbol] - ------------------------------------ This Fund has stock market risk, which means the Fund's stocks may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. You could lose money as a result of your investment. Sector risk refers to the chance that the Fund's return could be hurt significantly by problems affecting a particular market sector. With a potentially significant portion of the Fund's total assets invested in technology stocks, sector risk may be high for the Fund. When the Fund invests in foreign issuers, its total return may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country. Because it concentrates on growth stocks, the Fund is subject to the risk that growth stocks may be out of favor with investors for an extended period of time. WHO SHOULD INVEST? [Faces Symbol] - ----------------------------------------- This Fund is most appropriate for: - - Long-term investors - - Investors seeking a fund with a growth investment strategy - - Those willing to accept short-term price fluctuations COLUMBIA GROWTH FUND (CONT.) 8 HISTORICAL PERFORMANCE [Graph Symbol] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 11.82 1993 13.01 1994 -0.63 1995 32.98 1996 20.80 1997 26.32 1998 30.34 1999 26.02 2000 -7.94 2001 -21.40
BEST QUARTER: 4Q '98 at 25.59% WORST QUARTER: 3Q '01 at -22.01% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Growth Fund -21.40% 8.47% 11.72% Return After Taxes on Distributions -21.47% 6.45% 8.85% Return After Taxes on Distributions and Sale -12.96% 6.74% 8.80% of Fund Shares - ------------------------------------------------- S&P 500 Index -11.88% 10.70% 12.93% (reflects no deductions for fees, expenses or taxes) - ------------------------------------------------- Russell 1000 Growth Index -20.42% 8.27% 10.80% (reflects no deductions for fees, expenses or taxes) - -------------------------------------------------
The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [Percent Sign Symbol] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.56% Distribution and/or Service (12b-1) Fees None Other Expenses 0.16% Total Annual Fund Operating Expenses 0.72%
STOCK FUNDS 9 EXPENSES (CONT.) [Percent Sign Symbol] - --------------------------------- This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $74 $230 $401 $894
FINANCIAL HIGHLIGHTS [Money bag Symbol] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR................... $40.07 $48.91 $42.51 $34.34 $30.74 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)........................ (0.02) (0.08) (0.03) 0.03 0.19 Net realized and unrealized gains (losses) on investments....................................... (8.55) (3.49) 11.09 10.39 7.90 - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations.................... (8.57) (3.57) 11.06 10.42 8.09 - ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income................ - - (0.00)* (0.08) (0.17) Distributions from capital gains.................... (0.15) (5.27) (4.66) (2.17) (4.32) - ------------------------------------------------------------------------------------------------------------------------- Total distributions................................. (0.15) (5.27) (4.66) (2.25) (4.49) NET ASSET VALUE, END OF YEAR......................... $31.35 $40.07 $48.91 $42.51 $34.34 TOTAL RETURN......................................... -21.40% -7.94% 26.02% 30.34% 26.32% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)............... $1,325,844 $1,919,227 $2,160,739 $1,753,024 $1,324,918 Ratio of expenses to average net assets.............. 0.72% 0.65% 0.65% 0.68% 0.71% Ratio of net investment income (loss) to average net assets.............................................. (0.07)% (0.18)% (0.07)% 0.21% 0.55% Portfolio turnover rate.............................. 122% 114% 118% 105% 96%
* Amount represents less than $0.01 per share. COLUMBIA INTERNATIONAL STOCK FUND - -------------------------------------------------------------------------------- 10 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------- The Fund seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its total assets in stocks issued by companies from at least three countries outside the U.S. While the Fund's investments are not limited by market capitalization, the Fund intends to invest primarily in companies considered to be large and well-established, based on standards of the applicable country or foreign market. Most of the Fund's stocks will be denominated in foreign currencies. This means that their value will be affected by changes in the exchange rate between the U.S. dollar and foreign currencies. The Fund intends to invest principally in the equity securities of companies located in the following countries: Australia, Brazil, Canada, China, Denmark, Finland, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Mexico, The Netherlands, New Zealand, Norway, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand and the United Kingdom. The Fund may also invest in securities convertible into or exercisable for stock (including preferred stock, warrants and debentures) and certain options and financial futures contracts. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------ This Fund has stock market risk and foreign investment risk. You could lose money as a result of your investment. Stock market risk means the Fund's stocks may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. Foreign investment risk means the Fund's portfolio may decline in value due to the risks associated with international investing, such as: - - Changes in currency exchange rates - - Foreign taxes that could reduce returns - - Potential political or economic instability of the country of the issuer, especially in emerging or developing countries - - Lack of uniform accounting, auditing and financial reporting standards, with less governmental regulation and oversight than U.S. companies - - Less liquidity than U.S. securities - - Less public information compared to U.S. companies WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - - Long-term investors - - Those seeking stock market diversification outside the U.S. - - Those willing to accept substantial price fluctuations STOCK FUNDS 11 HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1993 33.37 1994 -2.47 1995 5.15 1996 16.59 1997 11.47 1998 12.83 1999 57.93 2000 -22.64 2001 -18.47
BEST QUARTER: 4Q '99 at 34.96% WORST QUARTER: 3Q '98 at -17.69% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year 5 Years (10/1/92) Columbia International Stock Fund -18.47% 4.61% 7.79% Return After Taxes on Distributions -18.39% 2.84% 6.26% Return After Taxes on Distributions and Sale -11.14% 3.62% 6.19% of Fund Shares - ------------------------------------------------- MSCI EAFE Index -21.21% 1.17% 6.13% (reflects no deductions for fees, expenses or taxes) - -------------------------------------------------
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index) is an unmanaged index representing major stock markets in Europe, Australasia and the Far East. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ------------------------------------------------ As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.56% Total Annual Fund Operating Expenses 1.56%
COLUMBIA INTERNATIONAL STOCK FUND (CONT.) 12 EXPENSES (CONT.) [PERCENT SIGN SYMBOL] - --------------------------------------------------- This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $159 $493 $850 $1,856
FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ---------------------------------------------------- This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR......................... $14.77 $22.81 $15.45 $13.70 $13.86 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss).............................. 0.01 (0.04) (0.05) (0.00)* 0.03 Net realized and unrealized gains (losses) on investments and foreign currency transactions....................... (2.74) (5.17) 9.00 1.76 1.56 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations.......................... (2.73) (5.21) 8.95 1.76 1.59 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from net investment income.................. (0.01) - - - - Distributions from capital gains.......................... - (2.83) (1.59) (0.01) (1.75) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions....................................... (0.01) (2.83) (1.59) (0.01) (1.75) NET ASSET VALUE, END OF YEAR............................... $12.03 $14.77 $22.81 $15.45 $13.70 TOTAL RETURN............................................... -18.47% -22.64% 57.93% 12.83% 11.47% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)..................... $135,626 $175,316 $239,223 $134,193 $146,281 Ratio of expenses to average net assets.................... 1.56% 1.42% 1.48% 1.56% 1.62% Ratio of net investment income (loss) to average net assets.................................................... 0.06% (0.19)% (0.35)% (0.02)% 0.19% Portfolio turnover rate.................................... 130% 112% 94% 74% 122%
* Amount represents less than $0.01 per share. COLUMBIA SPECIAL FUND - ------------------------------------------------------------ STOCK FUNDS 13 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - --------------------------------------------------------- The Fund seeks significant capital appreciation by investing primarily in the stocks of small- and mid-cap companies. The Fund may invest in special situations such as initial public offerings (IPOs); companies that may benefit from technological or product developments or new management; and companies involved in tender offers, leveraged buy-outs or mergers. Although the Fund intends to invest primarily in small- to mid-cap companies, it may invest in larger companies when Columbia believes they offer comparable capital appreciation opportunities or to stabilize the portfolio. Columbia will constantly monitor economic conditions to determine the appropriate percentage of the Fund's assets that will be invested in small- to mid-cap companies. The Fund may also invest in securities convertible into or exercisable for stock (including preferred stock, warrants and debentures), certain options and financial futures contracts ("derivatives"). The Fund may also invest, to a limited extent, in foreign securities, including American Depositary Receipts. INVESTMENT RISKS [FIRE SYMBOL] - -------------------------------------------------- This Fund has stock market risk, which means the stocks held by the Fund may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. You could lose money as a result of your investment. Small- and mid-cap stocks are subject to greater risk than large-cap stocks because: - - Their issuers may have limited operating histories, fewer financial resources, inexperienced management, and may depend on a small number of products or services - - They may have low trading volumes, making it difficult to sell a security or resulting in erratic or abrupt price movements Special situations have risk because they often involve major corporate changes and, thus, present a high degree of uncertainty as to market effect. Sector risk refers to the chance that the Fund's returns could be hurt significantly by problems affecting a particular market sector. With a potentially significant portion of the Fund's total assets invested in technology stocks, sector risk may be high for the Fund. When the Fund invests in foreign issuers, its total return may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country. WHO SHOULD INVEST? [FACES SYMBOL] - --------------------------------------------------- This Fund is appropriate for: - - Long-term, aggressive growth investors - - Those looking to diversify their large-cap stock portfolios with small- and mid-cap stock investments - - Those willing to accept significant price fluctuations COLUMBIA SPECIAL FUND (CONT.) 14 HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 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
BEST QUARTER: 4Q '99 at 37.43% WORST QUARTER: 1Q '01 at -20.28% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Special Fund -20.98% 10.01% 12.82% Return After Taxes on Distributions -21.70% 7.20% 9.25% Return After Taxes on Distributions and Sale -12.10% 7.61% 9.33% of Fund Shares - ------------------------------------------------- Russell Midcap Index -5.62% 11.40% 13.58% (reflects no deductions for fees, expenses or taxes) - ------------------------------------------------- Russell Midcap Growth Index -20.15% 9.02% 11.10% (reflects no deductions for fees, expenses or taxes) - -------------------------------------------------
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. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ------------------------------------------------ As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.89% Distribution and/or Service (12b-1) Fees None Other Expenses 0.19% Total Annual Fund Operating Expenses 1.08%
STOCK FUNDS 15 EXPENSES (CONT.) [PERCENT SIGN SYMBOL] - ----------------------------------------------------- This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $110 $342 $593 $1,311
FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ---------------------------------------------------------- This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR................... $25.99 $29.93 $23.62 $20.26 $19.85 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)........................ (0.11) (0.10) (0.16) (0.03) 0.01 Net realized and unrealized gains (losses) on investments....................................... (5.35) 4.45 8.74 3.40 2.50 - ------------------------------------------------------------------------------------------------------------------- Total from investment operations.................... (5.46) 4.35 8.58 3.37 2.51 - ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income................ - - - (0.01) - Distributions from capital gains.................... (0.93) (8.29) (2.27) (0.00)* (2.10) - ------------------------------------------------------------------------------------------------------------------- Total distributions................................. (0.93) (8.29) (2.27) (0.01) (2.10) NET ASSET VALUE, END OF YEAR......................... $19.60 $25.99 $29.93 $23.62 $20.26 TOTAL RETURN......................................... -20.98% 13.84% 36.33% 16.64% 12.64% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)............... $786,071 $1,095,525 $918,322 $969,359 $1,249,718 Ratio of expenses to average net assets.............. 1.08% 0.99% 1.09% 1.03% 0.98% Ratio of net investment income (loss) to average net assets.............................................. (0.49%) (0.38)% (0.64)% (0.09)% 0.04% Portfolio turnover rate.............................. 186% 169% 135% 135% 166%
* Amount represents less than $0.01 per share. COLUMBIA SMALL CAP FUND* - ------------------------------------------------------------------- 16 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - --------------------------------------------------------- The Fund seeks capital appreciation by investing, under normal market conditions, at least 80% of its assets in stocks of companies with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the S&P Small Cap 600 Index. There is no minimum aggregate market valuation for a company to be considered an appropriate investment for the Fund. The Fund may also invest up to 20% of its net assets in larger-cap stocks when they offer capital appreciation potential that is generally comparable to small-cap stocks. The Fund may invest in securities convertible into or exercisable for stock (including preferred stock, warrants and debentures), certain options and financial futures contracts ("derivatives"). The Fund may also invest, to a limited extent, in foreign securities, including American Depositary Receipts. INVESTMENT RISKS [FIRE SYMBOL] - --------------------------------------------------- This Fund has stock market risk, which means the Fund's stocks may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. You could lose money as a result of your investment. Small-cap stocks are subject to greater volatility than large-cap stocks because: - - Their issuers may have limited operating histories, fewer financial resources, inexperienced management, and may be dependent on a small number of products or services - - They may have low trading volumes, making it difficult to sell a security or resulting in erratic or abrupt price movements Sector risk refers to the chance that the Fund's returns could be hurt significantly by problems affecting a particular market sector. With a potentially significant portion of the Fund's total assets invested in technology stocks, sector risk may be high for the Fund. When the Fund invests in foreign issuers, its total return may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country. WHO SHOULD INVEST? [FACES SYMBOL] - -------------------------------------------------------- This Fund is appropriate for: - - Long-term, aggressive growth investors - - Those looking to diversify their mid- and large-cap stock portfolios with small-cap stock investments - - Those willing to accept significant price fluctuations *EFFECTIVE MARCH 1, 2002, THIS FUND IS CLOSED TO NEW INVESTORS. FOR INFORMATION SEE "PURCHASING SHARES" ON PAGE 54. STOCK FUNDS 17 HISTORICAL PERFORMANCE [GRAPH SYMBOL] - --------------------------------------------------- The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1997 34.10 1998 4.69 1999 59.15 2000 5.85 2001 -14.19
BEST QUARTER: 4Q '99 at 50.27% WORST QUARTER: 3Q '01 at -25.64% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year 5 Years (10/1/96) Columbia Small Cap Fund -14.19% 15.21% 15.88% Return After Taxes on Distributions -14.19% 13.84% 14.58% Return After Taxes on Distributions and Sale -8.64% 12.14% 12.80% of Fund Shares - ------------------------------------------------- Russell 2000 Index 2.49% 7.52% 8.11% (reflects no deductions for fees, expenses or taxes) - ------------------------------------------------- Russell 2000 Growth Index -9.24% 2.87% 2.76% (reflects no deductions for fees, expenses or taxes) - -------------------------------------------------
The Russell 2000 Index is an unmanaged index generally considered representative of the market for small domestic stocks. The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - -------------------------------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.23% Total Annual Fund Operating Expenses 1.23%
COLUMBIA SMALL CAP FUND (CONT.) 18 EXPENSES (CONT.) [Percent Sign Symbol] - ---------------------------------- This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $125 $390 $676 $1,489
FINANCIAL HIGHLIGHTS [Money bag Symbol] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR......................... $25.87 $27.26 $17.43 $16.65 $12.99 INCOME FROM INVESTMENT OPERATIONS: Net investment loss....................................... (0.13) (0.10) (0.14) (0.09) (0.08) Net realized and unrealized gains (losses) on investments............................................. (3.54) 1.75 10.45 0.87 4.51 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations.......................... (3.67) 1.65 10.31 0.78 4.43 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from capital gains.......................... - (3.04) (0.48) (0.00)* (0.77) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions....................................... - (3.04) (0.48) (0.00) (0.77) NET ASSET VALUE, END OF YEAR............................... $22.20 $25.87 $27.26 $17.43 $16.65 TOTAL RETURN............................................... -14.19% 5.85% 59.15% 4.69% 34.10% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)..................... $617,966 $518,970 $290,374 $160,472 $96,431 Ratio of expenses to average net assets.................... 1.23% 1.22% 1.30% 1.34% 1.46% Ratio of net investment loss to average net assets......... (0.71)% (0.44)% (0.84)% (0.68)% (0.81)% Portfolio turnover rate.................................... 129% 145% 188% 158% 172%
* Amount represents less than $0.01 per share. COLUMBIA REAL ESTATE EQUITY FUND - -------------------------------------------------------------------------------- STOCK FUNDS 19 GOAL AND STRATEGY [Man w/ telescope Symbol] - -------------------------------------- The Fund seeks capital appreciation and above-average income by investing, under normal market conditions, at least 80% of its assets in the stocks of companies principally engaged in the real estate industry, including real estate investment trusts (REITs). A company is "principally engaged" in the real estate industry if at least 50% of its gross income or net profits are attributable to the ownership, construction, management or sale of residential, commercial or industrial real estate. A REIT is an investment vehicle that pools investors' money for investment primarily in income producing real estate or related loans or interest in a REIT. A REIT is not taxed on income distributed to shareholders if it complies with several requirements relating to its organization, ownership, assets and income, and a requirement that it distribute to its shareholders at least 95% of its taxable income (other than net capital gains) for each taxable year. REITs are generally classified as equity REITs, mortgage REITs, and hybrid REITs. An equity REIT, which invests the majority of its assets directly in real properties -- such as shopping centers, malls, multi-family housing and commercial properties -- derives its income primarily from rents and lease payments. An equity REIT can also realize capital gains by selling properties that have appreciated in value. A mortgage REIT, which invests the majority of its assets in real estate mortgages, derives its income primarily from interest payments. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs. INVESTMENT RISKS [Fire Symbol] - ------------------------------------ This Fund has stock market risk and real estate risk. You could lose money as a result of your investment. Stock market risk means the stocks held by the Fund may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. Real estate risk means the Fund may be subject to the same types of risks associated with direct ownership of real estate: - - Declines in property value due to general, local and regional economic conditions - - Overbuilding and extended vacancies of properties - - Increased property taxes - - Casualty or condemnation losses - - Changes in zoning laws - - Environmental clean up costs If the Fund's investments are concentrated in a particular geographic region, real estate risk may be even more significant. See "More About Risk" on page 66 for additional information about REIT investment risk. COLUMBIA REAL ESTATE EQUITY FUND (CONT.) 20 WHO SHOULD INVEST? [Faces Symbol] - ----------------------------------------- This Fund is appropriate for: - - Long-term investors - - Those looking for an income-oriented equity fund that invests in real estate securities - - Those willing to accept short-term price fluctuations HISTORICAL PERFORMANCE [Graph Symbol] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1995 16.86 1996 38.30 1997 24.74 1998 -12.33 1999 -2.45 2000 28.84 2001 5.41
BEST QUARTER: 4Q '96 at 18.34% WORST QUARTER: 3Q '98 at -8.27% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year 5 Years (4/1/94) Columbia Real Estate Equity Fund 5.41% 7.69% 11.77% Return After Taxes on Distributions 3.76% 5.76% 9.64% Return After Taxes on Distributions and Sale of 3.26% 5.23% 8.67% Fund Shares - --------------------------------------------------- NAREIT Index 13.93% 6.38% 10.11% (reflects no deductions for fees, expenses or taxes) - ---------------------------------------------------
The NAREIT Index (National Association of Real Estate Investment Trusts) is an unmanaged index that reflects performance of all publicly-traded equity REITs. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). STOCK FUNDS 21 EXPENSES [Percent Sign Symbol] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.75% Distribution and/or Service (12b-1) Fees None Other Expenses 0.20% Total Annual Fund Operating Expenses 0.95%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $97 $303 $525 $1,166
FINANCIAL HIGHLIGHTS [Money bag Symbol] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR......................... $17.89 $14.57 $15.76 $18.80 $16.16 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................... 0.79 0.81 0.82 0.75 0.79 Net realized and unrealized gains (losses) on investments............................................. 0.15 3.32 (1.19) (3.04) 3.15 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations.......................... 0.94 4.13 (0.37) (2.29) 3.94 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income...................... (0.72) (0.75) (0.71) (0.66) (0.62) Distributions from capital gains.......................... - - - - (0.51) Return of capital......................................... (0.07) (0.06) (0.11) (0.09) (0.17) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions....................................... (0.79) (0.81) (0.82) (0.75) (1.30) NET ASSET VALUE, END OF YEAR............................... $18.04 $17.89 $14.57 $15.76 $18.80 TOTAL RETURN............................................... 5.41% 28.84% -2.45% -12.33% 24.74% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)..................... $621,590 $436,764 $241,716 $164,172 $151,554 Ratio of expenses to average net assets.................... 0.95% 0.96% 0.99% 1.01% 1.02% Ratio of net investment income to average net assets....... 4.65% 5.16% 5.66% 4.60% 4.87% Portfolio turnover rate.................................... 41% 25% 29% 6% 34%
COLUMBIA TECHNOLOGY FUND - ---------------------------------------------------------------------- 22 GOAL AND STRATEGY [Man w/ telescope Symbol] - -------------------------------------- The Fund seeks capital appreciation by investing, under normal market conditions, at least 80% of its total assets in stocks of technology companies that may benefit from technological improvements, advancements or developments. These companies include those that the portfolio manager believes have or will develop products, processes or services that will provide significant technological improvements, advances or developments, as well as those expected to benefit from their extensive reliance on technology in connection with their operations and services. The Fund may invest in companies from the biotechnology, cable and network broadcasting, communications, computer hardware, computer services and software, consumer electronics, defense, medical devices, pharmaceutical and semiconductor industries, among others. The Fund may invest in companies in all stages of corporate development, ranging from new companies developing a promising technology or scientific advancement to established companies with a record of producing breakthrough products and technologies from research and development efforts. The Fund will invest in companies of all sizes, and expects to invest a significant percentage of its assets in small- and mid-cap companies. The Fund may also invest in securities convertible into or exercisable for stock (including preferred stock, warrants and debentures), and certain options and financial futures contracts ("derivatives"). The Fund may also invest, to a limited extent, in foreign securities, including American Depositary Receipts. INVESTMENT RISKS [Fire Symbol] - ------------------------------------ This Fund is subject to stock market risk, which means the stocks held by the Fund may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. Because the Fund concentrates in technology stocks, its share price will likely be subject to more volatility than the overall stock market. The risks of investing only in technology-related stocks may be greater than investing in other market sectors or in a more diversified portfolio because of: - - Competitive pressures among technology companies that result in aggressive pricing of their products or services - - Short product cycles due to an accelerated rate of technological developments - - Varying investor enthusiasm for technology and technology-related stocks Additionally, the price of technology stocks will likely fluctuate more than non-technology stocks because technology companies are affected by scientific and technological developments and advancements and, for biotechnology companies in particular, may be subject to government regulation, including approval of their products. Technology companies may also be subject to greater business risks and, accordingly, may be more sensitive to changes in economic conditions. In addition, the share price of technology stocks may be more sensitive to companies' disappointing quarterly or annual earnings results, such as lower sales or profits than originally projected. STOCK FUNDS 23 INVESTMENT RISKS (CONT.) [FIRE SYMBOL] - ---------------------------------------------- The Fund's small- and mid-cap stocks are subject to greater risk than large-cap stocks because: - - Their issuers may have limited operating histories, fewer financial resources, and inexperienced management, and may depend on a small number of products or services - - They may have low trading volumes, making it difficult to sell a security or resulting in erratic or abrupt price movements The Fund is non-diversified, which means it may invest a greater percentage of its assets in one issuer. The Fund is concentrated, which means it may invest a higher percentage of its assets in specific industries within the technology sector. Accordingly, any economic, political and regulatory developments in a particular technology industry may have a greater impact on the Fund's net asset value and cause the Fund's returns to be more volatile than a fund that is not concentrated. Because the Fund may invest in foreign issuers, its total return may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - - Long-term, aggressive growth investors - - Those investors seeking a fund with an aggressive growth investment strategy that invests in technology companies - - Those willing to accept significant price fluctuations HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates the Fund's total return in a year, while the table on page 24 compares Fund performance over time (before and after taxes) to an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 2001 -28.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
BEST QUARTER: 4Q '01 at 34.73% WORST QUARTER: 3Q '01 at -37.59% COLUMBIA TECHNOLOGY FUND (CONT.) 24 HISTORICAL PERFORMANCE (CONT.) [GRAPH SYMBOL] - ----------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year (11/9/00) Columbia Technology Fund -28.97% -35.97% Return After Taxes on Distributions -28.97% -35.99% Return After Taxes on Distributions and Sale of Fund -17.64% -28.65% Shares - ----------------------------------------------------------- Merrill Lynch 100 Technology Index (reflects no deductions -32.45% -46.70% for fees, expenses or taxes) - -----------------------------------------------------------
The Merrill Lynch 100 Technology Index is an equally weighted index of 100 leading technology stocks. After-tax returns are calculated using the historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - -------------------------------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares of the Fund. The table below describes the fees and expenses that you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 1.40% Total Annual Fund Operating Expenses 2.40% Expense Reimbursement (0.75%) Net Expenses 1.65% For the year ending December 31, 2002, the Fund's Advisor has contractually agreed to limit the Fund's total expenses to 1.65% of Fund assets.
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $168 $520 $897 $1,955
STOCK FUNDS 25 FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ----------------------------------------------------- This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000(1) ------ --------- NET ASSET VALUE, BEGINNING OF PERIOD...................... $8.63 $10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............................. (0.08) 0.01 Net realized and unrealized losses on investments........ (2.42) (1.37) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations......................... (2.50) (1.36) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income..................... - (0.01) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions...................................... - (0.01) NET ASSET VALUE, END OF PERIOD............................ $6.13 $8.63 TOTAL RETURN.............................................. -28.97% -13.78%(2) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in thousands).................. $10,385 $4,327 Ratio of expenses to average net assets................... 1.69% 1.48%(3) Ratio of expenses to average net assets before voluntary reimbursement............................................ 2.82% 8.97%(3) Ratio of net investment income (loss) to average net assets................................................... (1.26)% 0.99%(3) Portfolio turnover rate................................... 413% 63%(2)
(1) From inception of operations on October 27, 2000. (2) Not annualized (3) Annualized COLUMBIA STRATEGIC VALUE FUND - -------------------------------------------------------------------------------- 26 GOAL AND STRATEGY [MAN W/ TELESCOPE SYMBOL] - --------------------------------------------------------- The Fund seeks long-term growth of capital by using a "value" approach to invest primarily in common stocks. This value approach emphasizes investments in companies the portfolio manager believes are undervalued relative to their intrinsic worth. A company may be undervalued due to market or economic conditions, temporary earnings declines, unfavorable developments affecting the company or other factors. Such factors may provide buying opportunities at prices attractive when compared to historical or market price-to-earnings (P/E) ratios, price-to-cash flow ratios, book value or return on equity. These "undervalued" companies typically have below-average earnings growth and above-average dividend yields. A company's value is measured based on its P/E ratios, price/sales ratios, asset values, and discount-to-private market value. Typically, the Fund seeks companies that are attractively valued and that are demonstrating or show the potential to demonstrate improving cash flow and return on invested capital. These may also include special situations companies that are experiencing management changes or are temporarily out of favor. The Fund may invest in companies of any size, but expects to invest a significant percentage of its assets in small- and mid-cap sized companies. The Fund may also invest in securities convertible into or exercisable for stock (including preferred stock, warrants and debentures), certain options and financial futures contracts ("derivatives"). The Fund may also invest up to 25% of its assets in foreign securities, including American Depositary Receipts. INVESTMENT RISKS [FIRE SYMBOL] - -------------------------------------------- The Fund is subject to stock market risk, which means the Fund's stocks may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. Because it concentrates on value stocks, this Fund is subject to the risk that value stocks may be out of favor with investors for an extended period of time. In addition, if the Fund's perception of a company's value is not realized in the expected time frame, the Fund's performance may suffer. To the extent the Fund invests in small- and mid-cap stocks, there will be greater risk than if the Fund invested only in large-cap stocks because: - - Their issuers may have limited operating histories, fewer financial resources, and inexperienced management, and may depend on a small number of products or services - - They may have low trading volumes, making it difficult to sell a security or resulting in erratic or abrupt price movements Because the Fund may invest in foreign issuers, its total return may be affected by fluctuations in currency exchange rates or political or economic conditions in a particular country. STOCK FUNDS 27 WHO SHOULD INVEST? [Faces Symbol] - ----------------------------------------- This Fund is appropriate for: - -Long-term investors - - Investors seeking to add a value oriented stock fund to their existing holdings - - Those willing to accept short-term price fluctuations HISTORICAL PERFORMANCE [Graph Symbol] - ------------------------------------------------ The bar chart below illustrates the Fund's total return in a year, while the table compares Fund performance over time (before and after taxes) to a broad market index and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 2001 29.76
BEST QUARTER: 4Q '01 at 18.19% WORST QUARTER: 3Q '01 at -11.74% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year (11/9/00) Columbia Strategic Value Fund 29.76% 40.76% Return After Taxes on Distributions 29.58% 40.50% Return After Taxes on Distributions and Sale of Fund 18.13% 32.58% Shares - ----------------------------------------------------------- S&P 500 Index (reflects no deductions for fees, expenses -11.88% -15.85% or taxes) - ----------------------------------------------------------- Lipper Multi-Cap Value Funds Index (reflects no deductions 1.30% 2.94% for fees, expenses or taxes) - -----------------------------------------------------------
The S&P 500 Index is an unmanaged index generally considered representative of the U.S. stock market. The Lipper Multi-Cap Value Funds Index reflects equally-weighted performance of the 30 largest mutual funds within its category. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). COLUMBIA STRATEGIC VALUE FUND (CONT.) 28 EXPENSES [PERCENT SIGN SYMBOL] - ----------------------------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.75% Distribution and/or Service (12b-1) Fees None Other Expenses 0.38% Total Annual Fund Operating Expenses 1.13%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $115 $359 $622 $1,375
FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ---------------------------------------------------- This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000(1) ------ --------- NET ASSET VALUE, BEGINNING OF PERIOD...................... $11.23 $10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................................... 0.05 0.02 Net realized and unrealized gains on investments......... 3.29 1.23 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations......................... 3.34 1.25 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income..................... (0.05) (0.02) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions...................................... (0.05) (0.02) NET ASSET VALUE, END OF PERIOD............................ 14.52 $11.23 TOTAL RETURN.............................................. 29.76% 12.25%(2) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in thousands).................. $139.504 $9,526 Ratio of expenses to average net assets................... 1.13% 1.34%(3) Ratio of expenses to average net assets before voluntary reimbursement............................................ 1.13% 5.31%(3) Ratio of net investment income to average net assets...... 0.71% 1.92%(3) Portfolio turnover rate................................... 278% 64%(2)
(1) From inception of operations on October 27, 2000. (2) Not annualized (3) Annualized COLUMBIA BALANCED FUND - ---------------------------------------------------------------- BALANCED FUND 29 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------- The Fund seeks high total return by investing in common stocks and debt securities. Normally, 35% to 65% of assets will be allocated to stocks and 35% to 65% will be allocated to debt securities. The Fund invests primarily in stocks of large-cap, well-established companies. Many of the Fund's stocks have a history of paying level or rising dividends and are expected to continue paying dividends. The Fund's debt securities will have intermediate- to long-term maturities. They will be primarily investment-grade (rated BBB or higher by S&P or Baa or higher by Moody's), or their unrated equivalents, including obligations of the U.S. Government, its agencies and instrumentalities, corporate debt securities, asset-backed securities, collateralized bonds, and loan and mortgage obligations. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------ Because this Fund invests in stocks and bonds, it has stock market risk, interest rate risk, credit risk and prepayment risk. You could lose money as a result of your investment. Stock market risk means the Fund's stocks may decline in value due to the activities and financial prospects of individual companies or to general market and economic conditions. Interest rate risk means that bonds may go down in value when interest rates rise. Credit risk means that the issuer of a bond may not be able to pay interest and principal when due. Prepayment risk means that the mortgage securities held by the Fund may be adversely affected by changes in prepayment rates on the underlying mortgages. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - - Long-term investors seeking to balance the higher volatility of stocks with the greater stability of income-generating bonds - - Investors seeking moderate growth over the long term HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table on page 30 compares Fund performance over time (before and after taxes) to certain broad market indices. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 8.89 1993 13.62 1994 0.10 1995 25.08 1996 11.78 1997 18.74 1998 20.07 1999 12.70 2000 0.82 2001 -7.40
BEST QUARTER: 4Q '98 at 12.86% WORST QUARTER: 3Q '01 at -8.72% COLUMBIA BALANCED FUND (CONT.) 30 HISTORICAL PERFORMANCE (CONT.) [GRAPH SYMBOL] - ---------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Balanced Fund -7.40% 8.45% 10.01% Return After Taxes on Distributions -8.41% 5.92% 7.52% Return After Taxes on Distributions and Sale -4.51% 5.97% 7.25% of Fund Shares - ------------------------------------------------- S&P 500 Index -11.88% 10.70% 12.93% (reflects no deductions for fees, expenses or taxes) - ------------------------------------------------- Lehman Aggregate Bond Index 8.44% 7.43% 7.23% (reflects no deductions for fees, expenses or taxes) - -------------------------------------------------
The S&P 500 Index is an unmanaged index generally considered representative of the U.S. stock market. The Lehman Aggregate Bond Index is an unmanaged index composed of investment-grade U.S. Treasury and agency securities, corporate bonds, and mortgage-backed bonds. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.50% Distribution and/or Service (12b-1) Fees None Other Expenses 0.17% Total Annual Fund Operating Expenses 0.67%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $68 $214 $373 $835
BALANCED FUND 31 FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR................... $22.96 $24.72 $23.17 $21.42 $20.32 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................... 0.58 0.67 0.69 0.72 0.84 Net realized and unrealized gains (losses) on investments....................................... (2.28) (0.41) 2.21 3.52 2.92 - ------------------------------------------------------------------------------------------------------------------- Total from investment operations.................... (1.70) 0.26 2.90 4.24 3.76 - ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income................ (0.59) (0.68) (0.69) (0.73) (0.83) Distributions from capital gains.................... - (1.34) (0.66) (1.76) (1.83) - ------------------------------------------------------------------------------------------------------------------- Total distributions................................. (0.59) (2.02) (1.35) (2.49) (2.66) NET ASSET VALUE, END OF YEAR......................... $20.67 $22.96 $24.72 $23.17 $21.42 TOTAL RETURN......................................... -7.40% 0.82% 12.70% 20.07% 18.74% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)............... $983,749 $1,126,854 $1,040,940 $975,381 $792,378 Ratio of expenses to average net assets.............. 0.67% 0.65% 0.66% 0.67% 0.68% Ratio of net investment income to average net assets.............................................. 2.73% 2.73% 2.85% 3.22% 3.83% Portfolio turnover rate.............................. 111% 105% 133% 128% 149%
COLUMBIA SHORT TERM BOND FUND - -------------------------------------------------------------------------------- 32 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------- The Fund seeks a high level of current income consistent with a high degree of principal stability by investing at least 80% of its assets in short-term, investment-grade, fixed income securities (rated BBB or higher by S&P or Baa or higher by Moody's, or if unrated deemed to be of comparable quality). Under normal market conditions, the Fund intends to invest at least 50% of its assets in direct and indirect obligations of the U.S. Government, its agencies and instrumentalities, and corporate debt securities rated in the two highest categories by S&P (AAA or AA) or Moody's (Aaa or Aa). The Fund's average portfolio duration will not exceed three years. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------ This Fund has interest rate risk, credit risk, and prepayment risk. You could lose money as a result of your investment. Interest rate risk means that your investment may go down in value when interest rates rise. Credit risk means that the issuer of a bond may not be able to pay interest and principal when due. Prepayment risk means that the mortgage securities held by the Fund may be adversely affected by changes in prepayment rates on the underlying mortgages. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - - Risk-averse, short-term investors - - Those willing to accept only a small amount of price volatility - - Those focused on the preservation of assets rather than the appreciation of assets - - Those looking to diversify a balanced portfolio with a short-term, income-earning investment HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table on page 33 compares Fund performance over time (before and after taxes) to broad market indices. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 5.81 1993 5.91 1994 -0.03 1995 10.21 1996 3.85 1997 5.76 1998 6.43 1999 1.80 2000 7.26 2001 8.07
BEST QUARTER: 3Q '92 at 3.88% WORST QUARTER: 1Q '92 at -0.93% BOND FUNDS 33 HISTORICAL PERFORMANCE (CONT.) [GRAPH SYMBOL] - ----------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Short Term Bond Fund 8.07% 5.84% 5.47% Return After Taxes on Distributions 5.77% 3.81% 3.38% Return After Taxes on Distributions and Sale of 4.88% 3.67% 3.35% Fund Shares - ---------------------------------------------------- Merrill Lynch 1-5 Year Govt./Corp. Index 8.98% 6.95% 6.53% (reflects no deductions for fees, expenses or taxes) - ---------------------------------------------------- Merrill Lynch 1-3 Year Treasury Index 8.30% 6.59% 6.09% (reflects no deductions for fees, expenses or taxes) - ----------------------------------------------------
The Merrill Lynch 1-5 Year Government/Corporate Index is an unmanaged index that includes all U.S. government debt with at least $100 million face value outstanding, as well as investment-grade rated corporate debt with at least $100 million face value outstanding, with a maturity between 1-5 years. Effective November 1, 2000, the Fund's investment strategy was changed from a U.S. government bond fund to a short term bond fund. The Merrill Lynch 1-3 Year Treasury Index is an unmanaged index that measures the return of Treasury bills with maturities of 1-3 years and is intended to provide a benchmark for the prior investment objective and strategy of the Fund. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.50% Distribution and/or Service (12b-1) Fees None Other Expenses 0.41% Total Annual Fund Operating Expenses 0.91% Expense Reimbursement (0.16%) Net Expenses 0.75%
For the three years commencing November 1, 2000, and ending October 31, 2003, the Fund's Advisor has contractually agreed to limit the Fund's total expenses to 0.75% of Fund assets. This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930
COLUMBIA SHORT TERM BOND FUND (CONT.) 34 FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ------------------------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR......................... $8.36 $8.20 $8.39 $8.29 $8.24 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................... 0.46 0.42 0.33 0.38 0.41 Net realized and unrealized gains (losses) on investments............................................. 0.21 0.16 (0.18) 0.14 0.05 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations.......................... 0.67 0.58 0.15 0.52 0.46 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income...................... (0.46) (0.42) (0.33) (0.38) (0.41) Distributions from capital gains.......................... (0.02) - (0.01) (0.04) - - --------------------------------------------------------------------------------------------------------------------------------- Total distributions....................................... (0.48) (0.42) (0.34) (0.42) (0.41) NET ASSET VALUE, END OF YEAR............................... $8.55 $8.36 $8.20 $8.39 $8.29 TOTAL RETURN............................................... 8.07% 7.26% 1.80% 6.43% 5.76% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)..................... $62,930 $35,856 $38,072 $40,578 $37,837 Ratio of expenses to average net assets.................... 0.75% 0.88% 0.91% 0.89% 0.87% Ratio of expenses to average net assets before contractual reimbursement............................................. 0.91% 0.90% 0.91% 0.89% 0.87% Ratio of net investment income to average net assets....... 5.26% 5.09% 4.09% 4.55% 4.99% Portfolio turnover rate.................................... 137% 147% 211% 182% 184%
COLUMBIA FIXED INCOME SECURITIES FUND - -------------------------------------------------------------------------------- BOND FUNDS 35 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------------------------- The Fund seeks a high level of income by investing in a broad range of debt securities with intermediate to long-term maturities. The Fund intends to invest 90% of its assets, under normal market conditions, in investment-grade debt securities (rated BBB or higher by S&P or Baa or higher by Moody's), or their unrated equivalents, including obligations of the U.S. Government, its agencies and instrumentalities, corporate debt securities, asset-backed securities, collateralized bonds, and loan and mortgage obligations. INVESTMENT RISKS [FIRE SYMBOL] - --------------------------------------------------------- This Fund has interest rate risk, credit risk, and prepayment risk. You could lose money as a result of your investment. Interest rate risk means that your investment may go down in value when interest rates rise. Credit risk means that the issuer of a bond may not be able to pay interest and principal when due. Prepayment risk means that the mortgage securities held by the Fund may be adversely affected by changes in prepayment rates on the underlying mortgages. WHO SHOULD INVEST? [FACES SYMBOL} - ---------------------------------------------------- This Fund is appropriate for: - - Long-term, income-oriented investors - - Investors willing to accept greater price fluctuation than is generally associated with short-term bonds - - Those looking to diversify their stock portfolio with a fund investing in bonds HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table on page 36 compares Fund performance over time (before and after taxes) to a broad market index. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 7.99 1993 10.47 1994 -3.36 1995 18.91 1996 3.37 1997 9.56 1998 7.44 1999 -1.50 2000 11.27 2001 8.13
BEST QUARTER: 2Q '95 at 6.36% WORST QUARTER: 1Q '94 at -3.04% COLUMBIA FIXED INCOME SECURITIES FUND (CONT.) 36 HISTORICAL PERFORMANCE (CONT.) [GRAPH SYMBOL] - ---------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Fixed Income Securities Fund 8.13% 6.88% 7.05% Return After Taxes on Distributions 5.67% 4.22% 4.21% Return After Taxes on Distributions and Sale of 4.91% 4.18% 4.25% Fund Shares - ---------------------------------------------------- Lehman Aggregate Bond Index 8.44% 7.43% 7.23% (reflects no deductions for fees, expenses or taxes) - ----------------------------------------------------
The Lehman Aggregate Bond Index is an unmanaged index of investment-grade U.S. Treasury and agency securities, corporate bonds and mortgage-backed bonds. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ---------------------------------------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.50% Distribution and/or Service (12b-1) Fees None Other Expenses 0.16% Total Annual Fund Operating Expenses 0.66%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $67 $211 $368 $822
BOND FUNDS 37 FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - --------------------------------------------------------- This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR......................... $12.97 $12.44 $13.42 $13.41 $13.08 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................... 0.78 0.82 0.78 0.83 0.85 Net realized and unrealized gains (losses) on investments............................................. 0.25 0.53 (0.98) 0.14 0.36 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations.......................... 1.03 1.35 (0.20) 0.97 1.21 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income...................... (0.78) (0.82) (0.78) (0.83) (0.85) Distributions from capital gains.......................... - - (0.00)* (0.13) (0.03) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions....................................... (0.78) (0.82) (0.78) (0.96) (0.88) NET ASSET VALUE, END OF YEAR............................... $13.22 $12.97 $12.44 $13.42 $13.41 TOTAL RETURN............................................... 8.13% 11.27% -1.50% 7.44% 9.56% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)..................... $465,743 $378,799 $397,147 $422,330 $381,333 Ratio of expenses to average net assets.................... 0.66% 0.66% 0.64% 0.65% 0.66% Ratio of net investment income to average net assets....... 5.92% 6.53% 6.03% 6.15% 6.43% Portfolio turnover rate.................................... 110% 105% 155% 107% 196%
* Amount represents less than $0.01 per share COLUMBIA NATIONAL MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- 38 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - ------------------------------------------------------------ The Fund seeks a high level of income exempt from federal income tax by investing at least 80% of its assets in municipal securities issued by state and local governments, their agencies and authorities, as well as the District of Columbia and U.S. territories and possessions, to finance various public or private projects. The Fund may also invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam, the interest on which is generally exempt from state income taxes. The Fund will only invest in municipal securities rated investment-grade by a securities rating agency or, if unrated, determined by Columbia to be of equivalent investment quality. The Fund intends to maintain an average portfolio maturity of approximately 10 to 12 years. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------------------------------- This Fund has interest rate risk, credit risk, political risk and geographic risk. You could lose money as a result of your investment. Interest rate risk means that your investment may go down in value when interest rates rise. Credit risk means that the issuer of a bond may not be able to pay interest and principal when due. Political risk means that a significant or potential change in tax laws affecting municipal bonds or federal income tax rates could impact municipal bond demand and cause their prices to fall. Geographic risk refers to the potential for price declines resulting from a negative development in a single state in which the Fund holds bonds. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------------------------- This Fund is appropriate for: - - Investors seeking income exempt from federal income tax - - Investors willing to accept greater price fluctuation than is generally associated with short-term bonds - - Conservative, long-term investors nearing or in retirement BOND FUNDS 39 HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 2000 10.87 2001 4.16
BEST QUARTER: 4Q '00 at 4.35% WORST QUARTER: 2Q '99 at -1.89% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year (2/24/99) Columbia National Municipal Bond Fund 4.16% 3.65% Return After Taxes on Distributions 4.12% 3.63% Return After Taxes on Distributions and Sale of Fund 4.34% 3.77% Shares - ----------------------------------------------------------- Lehman Brothers Municipal Bond Index (reflects no 5.13% 4.83%* deductions for fees, expenses or taxes) - ----------------------------------------------------------- Lipper General Municipal Debt Funds Index (reflects no 4.15% 3.54% deductions for fees, expenses or taxes) - -----------------------------------------------------------
The Lehman Brothers Municipal Bond Index is an unmanaged index considered representative of the broad market for investment-grade, tax exempt bonds with a maturity of at least one year. The Lipper General Municipal Debt Funds Index represents average performance of the largest general municipal debt funds tracked by Lipper Analytical Services. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). * Calculated from 3/1/99. EXPENSES [PERCENT SIGN SYMBOL] - ----------------------------------------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.50% Distribution and/or Service (12b-1) Fees None Other Expenses 0.81% Total Annual Fund Operating Expenses 1.31% Expense Reimbursement (0.66%) Net Expenses 0.65%
For the fiscal year ending December 31, 2002, the Fund's Advisor has contractually agreed to limit the Fund's total expenses to 0.65% of Fund assets. COLUMBIA NATIONAL MUNICIPAL BOND FUND (CONT.) 40 EXPENSES (CONT.) [PERCENT SIGN SYMBOL] - --------------------------------------------------------- This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $66 $208 $362 $810
FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - -------------------------------------------------------------- This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999(1) ------ ------ --------- NET ASSET VALUE, BEGINNING OF PERIOD...................... $9.82 $9.28 $10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................................... 0.44 0.44 0.34 Net realized and unrealized gains (losses) on investments............................................ (0.03) 0.54 (0.72) - -------------------------------------------------------------------------------------------- Total from investment operations......................... 0.41 0.98 (0.38) - -------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income..................... (0.44) (0.44) (0.34) Distributions from capital gains......................... (0.02) -- -- - -------------------------------------------------------------------------------------------- Total distributions...................................... (0.46) (0.44) (0.34) NET ASSET VALUE, END OF PERIOD............................ $9.77 $9.82 $9.28 TOTAL RETURN.............................................. 4.16% 10.87% -3.93%(2) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in thousands).................. $13,769 $10,898 $10,135 Ratio of expenses to average net assets................... 0.65% 0.65% 0.65%(3) Ratio of expenses to average net assets before contractual reimbursement............................................ 1.31% 1.29% 1.72%(3) Ratio of net investment income to average net assets...... 4.47% 4.68% 4.21%(3) Portfolio turnover rate................................... 20% 21% 12%(3)
(1) From inception of operations on February 10, 1999. (2) Not annualized. (3) Annualized. COLUMBIA OREGON MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- BOND FUNDS 41 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------- The Fund seeks a high level of income exempt from federal and Oregon income tax by investing at least 80% of its assets in municipal securities issued by the State of Oregon (and its political subdivisions, agencies, authorities and instrumentalities). Normally, the Fund will invest in Oregon municipal securities rated investment grade (by a securities rating agency) or, if unrated, determined by Columbia to be of equivalent investment quality. The Fund may also invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam, the interest on which is generally exempt from state income taxes. The Fund intends to maintain an average portfolio maturity of approximately 10 to 12 years. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------ This Fund has interest rate risk, credit risk, political risk and geographic risk. You could lose money as a result of your investment. Interest rate risk means that your investment value may go down when interest rates rise. Credit risk means that the issuer of a bond may not be able to pay interest and principal when due. Political risk means that a significant or potential change in tax laws affecting municipal bonds or federal income tax rates could impact municipal bond demand and cause their prices to fall. Geographic risk means that the Fund's concentration in Oregon tax-exempt bonds may cause it to be exposed to risks that do not apply to other bond funds, such as: - - Low trading volumes for Oregon municipal bonds - - Unfavorable economic conditions in Oregon - - Legal and legislative changes affecting the ability of Oregon municipalities to issue bonds The Fund is non-diversified, which means it may invest a greater percentage of its assets in one issuer. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - - Oregon residents seeking income exempt from federal and state personal income tax - - Investors willing to accept greater price fluctuation than is generally associated with short-term bonds - - Conservative, long-term investors nearing or in retirement COLUMBIA OREGON MUNICIPAL BOND FUND (CONT.) 42 HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table compares Fund performance over time (before and after taxes) to a broad market index and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 6.46 1993 10.73 1994 -4.68 1995 14.15 1996 3.77 1997 8.36 1998 5.58 1999 -2.65 2000 10.28 2001 4.55
BEST QUARTER: 1Q '95 at 5.76% WORST QUARTER: 1Q '94 at -5.01% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Oregon Municipal Bond Fund 4.55% 5.13% 5.51% Return After Taxes on Distributions 4.50% 5.04% 5.39% Return After Taxes on Distributions and 4.68% 5.07% 5.41% Sale of Fund Shares - ----------------------------------------------------- Lehman General Obligation Bond Index 5.09% 5.92% 6.51% (reflects no deductions for fees, expenses or taxes) - ----------------------------------------------------- Lipper Oregon Municipal Debt Funds Index 4.19% 4.86% 5.58% (reflects no deductions for fees, expenses or taxes) - -----------------------------------------------------
The Lehman General Obligation Bond Index represents average market-weighted performance of general obligation bonds that have been issued in the last five years with maturities greater than one year. The Lipper Oregon Municipal Debt Funds Index measures performance of all Oregon municipal bonds tracked by Lipper Analytical Services, Inc. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.50% Distribution and/or Service (12b-1) Fees None Other Expenses 0.07% Total Annual Fund Operating Expenses 0.57%
BOND FUNDS 43 EXPENSES (CONT.) [PERCENT SIGN SYMBOL] - ---------------------------------- This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $58 $183 $318 $714
FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR................... $12.13 $11.56 $12.46 $12.47 $12.15 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................... 0.57 0.58 0.56 0.58 0.60 Net realized and unrealized gains (losses) on investments....................................... (0.02) 0.58 (0.88) 0.10 0.39 - --------------------------------------------------------------------------------------------------------------- Total from investment operations.................... 0.55 1.16 (0.32) 0.68 0.99 - --------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income................ (0.57) (0.58) (0.56) (0.58) (0.60) Distributions from capital gains.................... (0.03) (0.01) (0.02) (0.11) (0.07) - --------------------------------------------------------------------------------------------------------------- Total distributions................................. (0.60) (0.59) (0.58) (0.69) (0.67) NET ASSET VALUE, END OF YEAR......................... $12.08 $12.13 $11.56 $12.46 $12.47 TOTAL RETURN......................................... 4.55% 10.28% -2.65% 5.58% 8.36% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)............... $491,638 $436,544 $409,919 $462,809 $409,148 Ratio of expenses to average net assets.............. 0.57% 0.58% 0.57% 0.58% 0.57% Ratio of net investment income to average net assets.............................................. 4.64% 4.92% 4.64% 4.60% 4.87% Portfolio turnover rate.............................. 14% 22% 28% 17% 17%
COLUMBIA HIGH YIELD FUND - -------------------------------------------------------------------- 44 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------- The Fund seeks a high level of income, with capital appreciation as a secondary goal, by investing in non-investment-grade corporate debt securities, commonly referred to as "junk" or "high-yield" bonds. Normally, the Fund will invest at least 80% of its assets in bonds rated Ba or B by Moody's or BB or B by S&P. No more than 10% of the Fund's assets will be invested in bonds rated Caa by Moody's or CCC by S&P, and no Fund assets will be invested in bonds below these grades. By focusing on higher quality junk bonds, the Fund seeks access to higher yielding bonds without assuming all the risk associated with the broader junk bond market. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------ This Fund has interest rate risk and credit risk. You could lose money as a result of your investment. Interest rate risk means that your investment may go down in value when interest rates rise. Credit risk means that the issuing company may not be able to pay interest and principal when due. The lower-rated bonds held by the Fund are subject to greater credit risk than higher-rated, lower yielding bonds. High yield bonds may be issued to fund corporate restructurings, such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar events, and they are often issued by smaller, less creditworthy companies or by companies with substantial debt. The prices of high yield bonds are generally more sensitive than higher-rated bonds to the financial condition of the issuer and adverse changes in the economy. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - -Long-term investors - - Investors willing to accept short-term price fluctuations - - Investors seeking to boost their bond portfolio's yield HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table on page 45 compares Fund performance over time (before and after taxes) to broad market indices and an index with a similar investment strategy. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1994 -0.92 1995 19.12 1996 9.43 1997 12.70 1998 6.26 1999 2.38 2000 4.61 2001 6.63
BEST QUARTER: 2Q '95 at 5.56% WORST QUARTER: 1Q '94 at -2.01% BOND FUNDS 45 HISTORICAL PERFORMANCE (CONT.) [GRAPH SYMBOL] - ----------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
Inception 1 Year 5 Years (10/1/93) Columbia High Yield Fund 6.63% 6.46% 7.24% Return After Taxes on Distributions 3.49% 2.98% 3.76% Return After Taxes on Distributions and Sale of 4.00% 3.44% 4.03% Fund Shares - ---------------------------------------------------- Salomon BB Index 13.48% 7.79% 8.41% (reflects no deductions for fees, expenses or taxes) - ---------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index 6.20% 3.95% 6.24% (reflects no deductions for fees, expenses or taxes) - ---------------------------------------------------- Merrill Lynch Intermediate BB Index 9.99% 6.29% 7.20% (reflects no deductions for fees, expenses or taxes) - ----------------------------------------------------
The Salomon BB Index measures the total return of bonds with a maturity of at least one year and includes bonds rated BB by S&P or bonds rated Ba by Moody's. The Merrill Lynch U.S. High Yield, Cash Pay Index is an unmanaged index of non-investment-grade corporate bonds. The Advisor intends to replace the Salomon BB Index with the Merrill Lynch U.S. High Yield, Cash Pay Index as the Fund's broad index, as it is more representative of a broad based index. The Merrill Lynch Intermediate BB Index is a market weighted index, consisting of BB cash pay bonds, which are U.S. dollar denominated bonds issued in the U.S. domestic market with maturities between 1 and 10 years. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown, and after-tax returns shown are not relevant if you hold shares of the Fund through tax-deferred accounts, such as 401(k) plans or individual retirement accounts (IRAs). EXPENSES [PERCENT SIGN SYMBOL] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.60% Distribution and/or Service (12b-1) Fees None Other Expenses 0.25% Total Annual Fund Operating Expenses 0.85%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $87 $271 $471 $1,049
COLUMBIA HIGH YIELD FUND (CONT.) 46 FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR................... $8.98 $9.32 $9.84 $10.04 $9.94 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................... 0.69 0.75 0.74 0.76 0.81 Net realized and unrealized gains (losses) on investments....................................... (0.11) (0.34) (0.51) (0.15) 0.40 - --------------------------------------------------------------------------------------------------------------- Total from investment operations.................... 0.58 0.41 0.23 0.61 1.21 - --------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income................ (0.69) (0.75) (0.74) (0.76) (0.81) Distributions from capital gains.................... - - (0.01) (0.05) (0.30) - --------------------------------------------------------------------------------------------------------------- Total distributions................................. (0.69) (0.75) (0.75) (0.81) (1.11) NET ASSET VALUE, END OF YEAR......................... $8.87 $8.98 $9.32 $9.84 $10.04 TOTAL RETURN......................................... 6.63% 4.61% 2.38% 6.26% 12.70% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)............... $238,994 $97,575 $71,678 $57,524 $39,278 Ratio of expenses to average net assets.............. 0.85% 0.93% 0.91% 0.95% 1.00% Ratio of expenses to average net assets before voluntary reimbursement............................. 0.85% 0.93% 0.91% 0.95% 1.02% Ratio of net investment income to average net assets.............................................. 7.64% 8.22% 7.71% 7.52% 8.05% Portfolio turnover rate.............................. 69% 50% 49% 79% 124%
COLUMBIA DAILY INCOME COMPANY - ------------------------------------------------------------------------- MONEY MARKET FUND 47 GOAL AND STRATEGY [MAN W/TELESCOPE SYMBOL] - -------------------------------------- The Fund seeks a high level of income consistent with the maintenance of liquidity and the preservation of capital by investing primarily in high quality money market securities. These securities include those issued by the U.S. Government and its agencies and instrumentalities, whose principal and interest are guaranteed; commercial paper which, if rated by S&P or Moody's, is rated, at the time of purchase, A-1 by S&P and Prime 1 by Moody's or, if not rated, is determined to be of comparable quality by the Fund; and other high quality corporate debt with average maturities of less than 12 months. The Fund's assets will be invested in short-term debt obligations maturing within one year. The average dollar-weighted maturity of the portfolio will not exceed 90 days. INVESTMENT RISKS [FIRE SYMBOL] - ------------------------------------ An investment in this or any other money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Fund seeks to preserve the value of a shareholder's investment at $1 per share, it is possible to lose money by investing in the Fund. Additionally, there is a chance that the Fund's returns may not keep pace with the rate of inflation over the long term. WHO SHOULD INVEST? [FACES SYMBOL] - ----------------------------------------- This Fund is appropriate for: - - Short-term, risk averse investors - - Investors focused on the preservation of assets rather than the appreciation of assets - - Investors seeking liquidity HISTORICAL PERFORMANCE [GRAPH SYMBOL] - ------------------------------------------------ The bar chart below illustrates how the Fund's total return has varied from year to year, while the table shows performance over time. This information may help provide an indication of the Fund's risks and potential rewards. All figures assume the reinvestment of dividends. Past performance cannot guarantee future results. [BAR CHART NUMBERS IN PERCENTAGES] 1992 3.25 1993 2.51 1994 3.68 1995 5.49 1996 4.96 1997 5.11 1998 5.09 1999 4.71 2000 6.00 2001 3.70
BEST QUARTER: 3Q '00 at 1.55% WORST QUARTER: 4Q '01 at 0.50% AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01
1 Year 5 Years 10 Years Columbia Daily Income Company 3.70% 4.92% 4.45% - --------------------------------------------------
COLUMBIA DAILY INCOME COMPANY (CONT.) 48 EXPENSES [PERCENT SIGN SYMBOL] - ----------------------- As a Columbia shareholder, you pay no transaction fees such as sales loads or redemption and exchange fees when you buy or sell shares. The table below describes the annual expenses you may pay when you hold Fund shares. ANNUAL FUND OPERATING EXPENSES (expenses that are paid out of Fund assets) Management Fees 0.46% Distribution and/or Service (12b-1) Fees None Other Expenses 0.14% Total Annual Fund Operating Expenses 0.60%
This is a hypothetical example intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Although your actual cost may be higher or lower, you would pay the following expenses on a $10,000 investment, assuming: 1) a 5% annual return, 2) the Fund's operating expenses remain the same, 3) you redeem all your shares at the end of the periods shown, and 4) all distributions are reinvested.
1 YEAR 3 YEARS 5 YEARS 10 YEARS $61 $192 $335 $750
FINANCIAL HIGHLIGHTS [MONEY BAG SYMBOL] - ------------------------------------------ This table will help you understand the Fund's financial performance for the periods indicated. Certain information reflects financial results for a single Fund share. Total return shows how much your Fund investment increased or decreased during each period, assuming reinvested dividends and distributions. PricewaterhouseCoopers LLP, independent accountants, has audited this information. Their report, along with the Fund's financial statements, is included in the Funds' annual report, which is available upon request.
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR................... $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................... 0.036 0.058 0.046 0.050 0.050 - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations.................... 0.036 0.058 0.046 0.050 0.050 - ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income................ (0.036) (0.058) (0.046) (0.050) (0.050) - ------------------------------------------------------------------------------------------------------------------------- Total distributions................................. (0.036) (0.058) (0.046) (0.050) (0.050) NET ASSET VALUE, END OF YEAR......................... $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN......................................... 3.70% 6.00% 4.71% 5.09% 5.11% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (in thousands)............... $1,253,535 $1,198,151 $1,165,289 $1,109,141 $1,169,096 Ratio of expenses to average net assets.............. 0.60% 0.60% 0.64% 0.62% 0.63% Ratio of net investment income to average net assets.............................................. 3.61% 5.82% 4.61% 4.97% 4.99%
MANAGEMENT - -------------------------------------------------------------------------------- Columbia's Investment Team is responsible for developing investment themes and strategies for the Funds. MANAGEMENT 49 The Funds' investment advisor is Columbia Funds Management Company ("Columbia"), P.O. Box 1350, Portland, Oregon 97207-1350. Columbia is responsible for managing the Funds' portfolios and its business affairs, subject to oversight by the Funds' Boards of Directors. Columbia or its predecessor has acted as an investment advisor since 1967. For the year ended December 31, 2001, the investment advisory fees paid to Columbia by each of the Funds, expressed as a percentage of net assets, were as follows: Columbia Common Stock Fund 0.60% Columbia Growth Fund 0.56% Columbia International Stock Fund 1.00% Columbia Special Fund 0.89% Columbia Small Cap Fund 1.00% Columbia Real Estate Equity Fund 0.75% Columbia Technology Fund 1.00% Columbia Strategic Value Fund 0.75% Columbia Balanced Fund 0.50% Columbia Short Term Bond Fund 0.50% Columbia Fixed Income Securities Fund 0.50% Columbia National Municipal Bond Fund 0.50% Columbia Oregon Municipal Bond Fund 0.50% Columbia High Yield Fund 0.60% Columbia Daily Income Company 0.46%
COLUMBIA INVESTMENT TEAM Columbia's Investment Team is responsible for developing investment themes and strategies for the Funds. Mr. Richard J. Johnson, CFA, is Chief Investment Officer and supervises the Team's activities. Prior to joining Columbia, Mr. Johnson served as Portfolio Manager and Analyst at Provident Investment Counsel (1990-1994). Mr. Johnson received a Master of Business Administration degree from the Anderson School of Management at UCLA in 1990. For most Funds, a lead portfolio manager is responsible for implementing and maintaining the investment themes and strategies developed by the Team, while adhering to the specific goal and strategy of the Fund. COMMON STOCK FUND -- TEAM MANAGED (SINCE 1998). Based on an analysis of macroeconomic factors and the investment environment, Columbia's Asset Allocation Committee is responsible for determining the sector or industry weightings for the Fund. Individual members of the Investment Team then select securities within the sectors or asset classes for which they have research and analytic responsibility. 50 GROWTH FUND -- ALEXANDER S. MACMILLAN, CFA (SINCE 1992). A Senior Vice President of Columbia, Mr. Macmillan joined Columbia in 1989. Previously, he was a Vice President and Portfolio Manager for Gardner & Preston Moss (1982-1989). He received a Master of Business Administration degree from the Amos Tuck School at Dartmouth College in 1980. INTERNATIONAL STOCK FUND -- JAMES M. MCALEAR (SINCE 1992). A Vice President of Columbia, Mr. McAlear joined Columbia in 1992. Previously, he was a Senior Vice President of American Express Financial Advisors (1985-1992) and an Executive Director for Merrill Lynch Europe (1972-1985). He received a Master of Arts degree in economics from Michigan State University in 1964. SPECIAL FUND -- RICHARD J. JOHNSON, CFA (SINCE 1998). SMALL CAP FUND -- RICHARD J. JOHNSON, CFA (SINCE 1996). REAL ESTATE EQUITY FUND -- DAVID W. JELLISON, CFA (SINCE 1994). A Vice President of Columbia, Mr. Jellison joined Columbia in 1992. Previously, he was a Senior Research Associate for RCM Capital Management (1987-1992). Mr. Jellison received a Master of Management degree from the J.L. Kellogg Graduate School of Management at Northwestern University in 1984. TECHNOLOGY FUND -- STEVEN N. MARSHMAN, CFA (SINCE 2000). Mr. Marshman, a Vice President of Columbia, joined Columbia in 1992. Mr. Marshman joined the Investment Team as an equity security analyst in 1995 and has been a portfolio manager since 1997. A graduate of the Air Force Academy, he holds a Masters of Business Administration degree from Golden Gate University. STRATEGIC VALUE FUND -- ROBERT A. UNGER, CFA (SINCE 2000). A Senior Vice President of Columbia, Mr. Unger joined Columbia in 1984. Previously, he served as Vice President and Portfolio Manager at Alliance Capital Management and Senior Vice President at Oppenheimer Asset Management. Mr. Unger is a graduate of Northwestern University and holds a Master of Business Administration degree from the University of Denver. BALANCED FUND -- TEAM MANAGED (SINCE 1998). Based on an analysis of macroeconomic factors and the investment environment, Columbia's Asset Allocation Committee is responsible for determining the Fund's weightings in stocks, bonds and cash investments. That committee is also responsible for determining the sector or industry weightings of the equity portion of the Fund. Columbia's Bond Team is responsible for determining the sector emphasis among different types of fixed income securities. Individual members of the entire Investment Team then select the securities within the sector or asset classes for which they have research and analytic responsibility. MANAGEMENT 51 SHORT TERM BOND FUND -- LEONARD A. APLET, CFA (SINCE 2000) AND JEFFREY L. RIPPEY, CFA (SINCE 1987). Mr. Aplet, a Senior Vice President of Columbia, joined Columbia in 1987. Previously, he was a County Supervisor for the Farmers Home Administration (1976-1985). Mr. Aplet received a Master of Business Administration degree from the University of California at Berkeley in 1987. A Senior Vice President of Columbia, Mr. Rippey joined Columbia in 1981. Previously, he worked in the Trust Department of Rainier National Bank (1978-1981). Mr. Rippey is a 1978 graduate of Pacific Lutheran University. FIXED INCOME SECURITIES FUND -- LEONARD A. APLET, CFA (SINCE 1989) AND JEFFREY L. RIPPEY, CFA (SINCE 1989). NATIONAL MUNICIPAL BOND FUND -- GRETA R. CLAPP, CFA (SINCE 1999). A Vice President of Columbia, Ms. Clapp joined Columbia in 1991. Previously, she was an Assistant Vice President and Portfolio Manager at The Putnam Companies (1985-1988). Ms. Clapp received a Master of Business Administration degree from the University of Michigan in 1990. OREGON MUNICIPAL BOND FUND -- GRETA R. CLAPP, CFA (SINCE 1992). HIGH YIELD FUND -- JEFFREY L. RIPPEY, CFA (SINCE 1993) AND KURT M. HAVNAER, CFA (SINCE 2000). A Vice President of Columbia, Mr. Havnaer joined Columbia in 1996. Previously, he worked as a Portfolio Manager, Analyst and Trader for SAFECO Asset Management Co. (1991-1996). Mr. Havnaer received a Master of Business Administration degree from Seattle University in 1991. COLUMBIA DAILY INCOME COMPANY -- LEONARD A. APLET, CFA (SINCE 1988). PERSONAL TRADING Members of the Investment Team and other employees of the Funds or Columbia are permitted to trade securities for their own or family accounts, subject to the rules of the Code of Ethics adopted by the Funds and Columbia. The rules that govern personal trading by investment personnel are based on the principle that employees have a fiduciary duty to conduct their trades in a manner that is not detrimental to the Funds or their shareholders. For more information on the Code of Ethics and specific trading restrictions, see the Funds' Statement of Additional Information. AT-A-GLANCE INSTRUCTIONS FOR ACCOUNTS [MAIL GRAPHIC] [PHONE GRAPHIC] [COMPUTER GRAPHIC] [ARROW GRAPHIC] [HANDSHAKE GRAPHIC] IN PERSON AUTOMATIC INTERNET BY TELEPHONE BY MAIL 52
OPENING A NEW ACCOUNT PURCHASING SHARES [STAMPED ENVELOPE SYMBOL] Regular Mail Regular Mail Columbia Financial Center Columbia Financial Center P.O. Box 1350 P.O. Box 1350 Portland, OR 97207-1350 Portland, OR 97207-1350 Overnight Carrier Overnight Carrier Columbia Financial Center Columbia Financial Center 1301 S.W. Fifth Avenue 1301 S.W. Fifth Avenue Portland, OR 97201-5601 Portland, OR 97201-5601 Complete an application and send it to the address Send your investment to the above address. Be sure to above with your check for at least the minimum fund enclose an investment slip from the bottom of your investment. statement. - ------------------------------------------------------------------------------------------------------------ [PHONE SYMBOL] 1-800-547-1707 1-800-547-1707 WIRE: Once you submit a completed application, you WIRE: Invest using federal funds wired from your may open an account using federal funds wired from bank. Since each Fund has a different wire number, your bank. Since each Fund has a different wire call us for instructions. number, call us for instructions. EXCHANGE: Use the proceeds from the redemption in one Fund to purchase shares of another Fund with the same account number. To exchange shares, call us. TELEVEST: Provided the service is already set up on your account (use the application or call us for a form), request a transfer from your bank for investment in the Columbia Funds. - ------------------------------------------------------------------------------------------------------------ [COMPUTER SYMBOL] www.columbiafunds.com www.columbiafunds.com Download a prospectus and an application from our EXCHANGE: Call us for a personal identification Web site. Mail a completed application with your number to access your account online. Then, use the initial investment to the address above. proceeds from the redemption in one Fund to purchase shares of another Fund with the same account number. Submit your exchange request through our secure site. - ------------------------------------------------------------------------------------------------------------ [ARROW SYMBOL] A minimum of $50 per fund lets you open an account, Arrange to have investments transferred automatically provided you establish an automatic investment plan from your bank account to the Columbia Fund(s) of (AIP). This means that investments are transferred your choice on the 5th, 20th, or both, of each month. automatically from your bank to the Columbia Sign up for AIP on the application or call us for a Fund(s) of your choice each month. Sign up for AIP form. AIP investment minimum is $50 per Fund. on the application, or call us for a form. - ------------------------------------------------------------------------------------------------------------ [HANDS SHAKING SYMBOL] Columbia Financial Center Columbia Financial Center 1301 S.W. Fifth Avenue 1301 S.W. Fifth Avenue Portland, OR 97201-5601 Portland, OR 97201-5601 7:30 a.m. - 5:00 p.m. PST 7:30 a.m. - 5:00 p.m. PST Visit Columbia Funds, conveniently located in Visit Columbia Funds, conveniently located in downtown Portland. downtown Portland.
TAX-ADVANTAGED INVESTING WITH A COLUMBIA IRA OR RETIREMENT PLAN The following accounts require special applications. For an application and more details about tax-advantaged investing, call us at 1-800-547-1707. TRADITIONAL IRA A Traditional IRA allows you to invest a maximum of $3,000 in 2002 and 2003 and earn tax-deferred returns. Your contributions may be tax deductible. Deductions may be limited if your income exceeds a certain level or if you participate in certain retirement plans. Any withdrawals of tax-deductible contributions and tax-deferred earnings are taxable at your regular income tax rate. Early withdrawals also may be subject to penalties. You may choose to roll over retirement plan proceeds into a Columbia IRA in order to prolong tax-deferred savings. ROTH IRA A Roth IRA allows you to invest a maximum of $3,000 in 2002 and 2003, the returns on which are tax-free. Your contributions are not tax-deductible. Your ability to invest in a Roth IRA may be limited if your income exceeds a certain level. Tax-free withdrawals are available after a five-year holding period, provided you are over 59 1/2, a first time homebuyer, or satisfy other requirements. EDUCATION SAVINGS ACCOUNT Formerly the Education IRA, the Coverdell Education Savings Account allows you to contribute a maximum of $2,000 in 2002 and 2003, the returns on which are generally tax-free when used to fund certain education expenses of a child. Your contributions are not tax deductible. Your ability to invest in an ESA may be limited if your income exceeds a certain level. RETIREMENT PLANS A number of retirement plan options are available for small- to mid-size businesses. Contact Columbia at 1-800-547-1037, extension 2045 for further information. INVESTOR SERVICES 53 SELLING (REDEEMING) SHARES Regular Mail Columbia Financial Center P.O. Box 1350 Portland, OR 97207-1350 Overnight Carrier Columbia Financial Center 1301 S.W. Fifth Avenue Portland, OR 97201-5601 Send your redemption request to the above address. Redemption requests must be signed by each shareholder required to sign on the account. A signature guarantee may be required. Accounts in the names of corporations, fiduciaries, and intermediaries may require additional documentation. - ---------------------------------------------------------------------------- 1-800-547-1707 Redeem shares by phone (unless you have declined this service on the application). Proceeds from telephone redemptions may be mailed only to the account owner at the address of record (maximum $50,000) or transferred to a bank designated on the application (any amount). WIRE: Call us to request a wire redemption. Your request must be at least $1,000, and the bank wire cost for each redemption will be charged against your Columbia account. Your bank may impose a fee. EXCHANGE: Use the proceeds from the redemption of one Fund to purchase shares of another Fund with the same account number. To exchange shares, call us. - ---------------------------------------------------------------------------- www.columbiafunds.com EXCHANGE: Call us for a personal identification number to access your account online. Then, use the proceeds from the redemption in one Fund to purchase shares of another Fund with the same account number. To exchange shares, use our secure account e-mail. - ---------------------------------------------------------------------------- For accounts over $5,000, redeem shares on a regular basis through a transfer of funds from your Columbia account directly to the bank designated on your application ($50 minimum withdrawal). - ---------------------------------------------------------------------------- Columbia Financial Center 1301 S.W. Fifth Avenue Portland, OR 97201-5601 7:30 a.m. - 5:00 p.m. PST Although you can visit Columbia Funds to make a redemption request, availability of the proceeds will vary. Please call ahead for details. INVESTOR SERVICES - -------------------------------------------------------------------------------- INVESTMENT MINIMUMS First Time Fund Investment: $1,000 Minimum for all Funds but the Special and Small Cap Funds, which have $2,000 minimums Subsequent Fund Investment: $100 for all Funds Automatic Investment Plan: $50 for all Funds (minimum requirements for first time investments are waived) When investing in the Funds, please keep these important points in mind: - -Personal checks for investment should be drawn on U.S. funds, must meet Fund investment minimum requirements, and be made payable to Columbia Funds - -Columbia will not accept cash investments - -Columbia reserves the right to reject any investments - -If your investment is cancelled because your check did not clear the bank or because the Funds were unable to debit your bank account, you will be responsible for any losses or fees imposed by your bank or attributable to a loss in value of the shares purchased - -Columbia may reject any third party checks submitted for investment 54 This section is designed to acquaint you with the different services and policies associated with an investment in Columbia Funds. For an at-a-glance summary of account instructions, please see page 52. PURCHASING SHARES Shares of Columbia Funds are available at net asset value ("NAV"), which means that you pay no sales charges or commissions to invest. Your investment will be priced at the NAV next calculated after your order is accepted by the Funds. Investments transmitted by way of ACH (Automated Clearing House) will receive the NAV calculated the second business day following your request. Investments received for Columbia Daily Income Company must be converted to federal funds, so there may be a one-day delay in your investment. All bond funds and Columbia Daily Income Company will begin to earn interest on the day after the investment is made. COLUMBIA SMALL CAP FUND: Columbia Small Cap Fund is closed to new investors as of March 1, 2002. The Fund will accept additional investments under the conditions described below: - Current shareholders in the Fund -- whether directly through a personal account, as a beneficial owner of shares held in someone else's name, or through an intermediary such as a financial advisor or fund supermarket -- may continue to purchase shares in the Fund and reinvest dividends and capital gains distributions. - Existing direct shareholders in the Fund may open a new account in the Fund provided they use the same Social Security number. - An employee benefit plan that is an existing Fund shareholder may continue to buy shares even for new plan participants. - -All direct clients of Columbia and its affiliates may invest in the Fund, unless Columbia deems that their investment will adversely affect its ability to manage the Fund. - -Retirement plan participants initiating a transfer or rollover from an employee benefit plan that holds shares of the Fund may open a new IRA in the Fund. WILL OTHER FUNDS CLOSE TO NEW INVESTORS? Columbia reserves the right to close a Fund to new investors. Columbia will carefully consider a number of factors prior to closing a Fund to new investors, including a Fund's total assets and its flow of new money. If a Fund does close, existing Fund shareholders may continue to invest in that Fund so long as the shareholder's account remains open. INVESTOR SERVICES 55 - -A director, officer or employee of Columbia and its affiliates, and members of their immediate family, may invest in the Fund, unless Columbia deems that their investment will adversely affect its ability to manage the Fund. - -An employee benefit plan sponsored by an institution that also sponsors (or is an affiliate of an institution that sponsors) another employee benefit plan account that is a Fund shareholder may invest in the Fund. - -If, in the judgement of Columbia, an investment would not adversely affect its ability to manage the Fund. Columbia believes that permitting the additional investments described above would not adversely affect its ability to manage the Fund effectively. Columbia reserves the right to re-open the Fund to new investors or to modify the extent to which future sales of shares are limited. SELLING (REDEEMING) SHARES You can sell (redeem) shares any day the New York Stock Exchange ("NYSE") is open for business. Your shares will be redeemed at their net asset value, calculated after your valid redemption request is accepted by the Funds. There are no fees to sell shares. When redeeming, please keep these important points in mind: - - A signature guarantee may be required. See page 57 for examples of when a signature guarantee is required. - - Any certificated shares will require the return of the certificate before a redemption can be made. - - Redemptions of an IRA will require the completion of additional paperwork for the purposes of IRS tax reporting. - - Redemption requests must be signed by all owners on the account. - - Redemption requests from corporations, fiduciaries and intermediaries may require additional documentation. Normally, your redemption proceeds will be sent to you the day after the effective date of the redemption. Except as provided by rules of the Securities and Exchange Commission, redemption proceeds will be sent to you no later than seven days from the redemption date. Proceeds transmitted by way of ACH are usually credited to your bank account on the second business day following the request. 56 Also, before selling recently purchased shares, please note that if the 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. Additionally, the Fund reserves the right to redeem shares in-kind under unusual circumstances. In-kind payment means payment will be made to you in portfolio securities rather than cash. In that event, you will incur transaction costs if you sell the securities for cash. DRAFTWRITING IN COLUMBIA DAILY INCOME COMPANY. If you are a Columbia Daily Income Company shareholder, you may redeem shares by draft if you have completed the signature card attached to your original application. Drafts will be furnished to you free of charge. Drafts may not be written for less than $250. Your investment will earn daily income until your draft is presented for payment. Of course, your draft can only be paid if you have sufficient funds invested in Columbia Daily Income Company. A draft is a redemption and, therefore, subject to the Fund's approval. The draftwriting service may be terminated upon written notice. IMPORTANT FUND POLICIES HOW SHARES ARE PRICED. All purchases, redemptions and exchanges will be processed at the NAV next calculated after your request is received and accepted by a Fund. A Fund's NAV is calculated at the close of the regular trading session of the NYSE (normally 4:00 p.m. Eastern time). Shares will only be priced on days that the NYSE is open for trading. The NAV of a Fund is calculated by subtracting a Fund's liabilities from its assets and dividing the result by the number of outstanding shares. The Funds use market prices in valuing portfolio securities. Securities for which market quotations are not available will be valued at fair value as determined in good faith under procedures established by and under the general supervision of the Board of Directors of each Fund. Debt securities with remaining maturities of less than 60 days will generally be valued based on amortized cost, which approximates market value. WHEN IS A SIGNATURE GUARANTEE NECESSARY? To protect against fraud, a signature guarantee is required for each of the following written redemption requests: - - Redemption requests over $50,000 - - Redemption checks that are made payable to someone other than those registered on the account - - A request to send proceeds to an address or account other than those of record - - The mailing address for your redemption check has changed in the last 10 days Columbia may require signature guarantees in other situations or reject a redemption for legal reasons. Signature guarantees are available from a bank, broker dealer, credit union, savings and loan, national securities exchange or trust company. A notary public cannot supply a signature guarantee. INVESTOR SERVICES 57 Trading on many foreign securities markets is completed at various times before the close of the NYSE or on days the NYSE is not open for business. Consequently, the calculation of a Fund's NAV may take place at a time that is different than when prices are determined for funds holdings foreign securities. As a result, events affecting the values of foreign portfolio securities that occur between the time the prices are determined and the close of the NYSE will not be reflected in a Fund's calculation of NAV, unless the Board of Directors or Columbia, if delegated by the Board, determines that the event would materially affect the NAV. FINANCIAL INTERMEDIARIES. If you invest through a third party (rather than directly with Columbia), the policies and fees for transacting business may be different than those described here. Banks, brokers, 401(k) plans, financial advisors and financial supermarkets (a "Financial Intermediary") may charge transaction fees, and may set different minimum investments or limitations on buying or selling shares. Your total cost of investing in a Fund will be increased to the extent of any fees charged by your Financial Intermediary. Also, because these arrangements reduce or eliminate the need for the Fund's transfer agent to provide account services, the Funds and Columbia may pay the Financial Intermediary a recordkeeping or account servicing fee. Many Financial Intermediaries enter into an agreement with the Funds that authorizes them to accept purchase and redemption orders on behalf of the Funds. To the extent that the Financial Intermediary has agreed to act as an agent for the Fund, the Fund will be deemed to have received a purchase or redemption order when an authorized Financial Intermediary or its delegate accepts the order. The order will be priced at the Fund's net asset value next computed after it is accepted by the Financial Intermediary or its delegate. EXCHANGES. On any business day, you may exchange all or a portion of your shares into any other available Columbia Fund. To prevent excessive exchange activity to the detriment of other shareholders, only four exchanges per fund are allowed per year. When exchanging into a new fund, be sure you read the part of the prospectus that pertains to the fund you exchange into. The exchange privilege may be revoked or modified at any time, and the Funds reserve the right to reject any exchange request. For 58 example, the Funds may reject exchanges from accounts engaged in or known to engage in trading that exceeds the Fund's annual limit (including market timing transactions). TELEPHONE REDEMPTIONS. To determine whether telephone instructions are genuine, Columbia will request personal shareholder information when you call. All telephone instructions are recorded and a written confirmation of the redemption is mailed to the address of record. Proceeds from a telephone redemption may only be mailed to the registered name and address on the account, or transferred to your predesignated bank account or to another Columbia Fund under the same account number. For your protection, the ability to redeem by phone and have the proceeds mailed to your address may be suspended for up to 30 days following an address change. You may be liable for any fraudulent telephone instructions as long as Columbia takes reasonable measures to verify the identity of the caller. AUTOMATIC WITHDRAWALS. Automatic withdrawals are redeemed within seven days after the end of the month or quarter to which they relate. 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 balance requirement, your account is subject to being closed on 60 days written notice. INVOLUNTARY REDEMPTIONS. Upon 60 days prior written notice, a Fund may redeem all of your shares without your consent if: - - Your Fund balance falls below $500 - - You are a U.S. shareholder and fail to provide a certified taxpayer identification number - - You are a foreign shareholder and fail to provide a current Form W-8, "Certificate of Foreign Status" If your shares are redeemed by the Fund, payment will be made promptly at the Fund's current net asset value, and may result in a realized capital gain or loss. RECEIVE CUSTOMIZED INVESTMENT MANAGEMENT WITH A PRIVATE MANAGEMENT ACCOUNT For custom asset allocation services among the Columbia Funds, Columbia Trust Company offers the Private Management Account for investments over $150,000. The annual fee for this service is: - - 0.75% on the first $500,000 - - 0.50% on the next $500,000 - - 0.25% on assets over $1,000,000 The minimum fee for this service is $1,000 and the maximum fee is $15,000. These fees are in addition to the underlying expenses of the Funds making up the Private Management Account. For additional information, please call toll-free 1-866-651-4563. INVESTOR SERVICES 59 TAXPAYER IDENTIFICATION NUMBER. Federal law requires each Fund to withhold 31% of dividends and redemption proceeds paid to shareholders who have not complied with certain tax requirements. You will be asked to certify on your account application that the Social Security number provided is correct and that you are not subject to 31% backup withholding for previous underreporting of income to the IRS. The Funds will generally not accept new investments that do not comply with these requirements. SHAREHOLDER STATEMENTS AND REPORTS To stay informed about the status of your account, every Columbia Funds shareholder receives either monthly or quarterly statements. With the exception of recurring activity, such as an automatic investment or withdrawal plan, you will receive a confirmation for all transactions in your account. You'll also receive an annual tax report detailing the taxable characteristics of any Fund distributions from the prior year. Shareholder reports are sent to shareholders twice a year. Shareholders have the option to receive these reports electronically. To receive reports via e-mail, simply contact Investor Services at 1-800-547-1707. To reduce the cost of mailing reports to shareholders, only one shareholder report and the Funds' annually updated prospectus will be mailed to accounts with the same Tax Identification Number or the same family name registered at the same address. If you do not wish to have your shareholder reports and prospectuses consolidated, please call us and we will send you individual copies within 30 days of your request. In addition, shareholders or multiple accounts at the same mailing address can eliminate duplicate enclosures for statements mailed to that address by filing a SAVMAIL form with the Funds. For a SAVMAIL form or to receive additional copies of any financial report or Prospectus, please call an Investor Services Representative at 1-800-547-1707. DISTRIBUTIONS AND TAXES - ------------------------------------------------------------- 60 Each Fund distributes to shareholders its net investment income and net realized capital gains. Net investment income (income from dividends, interest and any net realized short-term capital gains) and net long-term capital gains (gains realized on a sale of a security by a Fund) are distributed as follows: INCOME AND CAPITAL GAINS DISTRIBUTIONS
NET INVESTMENT NET REALIZED LONG- FUND INCOME TERM CAPITAL GAINS Growth Fund Declared and paid in Normally declared and December paid in December International Stock Fund Special Fund Small Cap Fund Technology Fund Strategic Value Fund - ------------------------------------------------------------------------------------ Common Stock Fund Declared and paid each Normally declared and Real Estate Equity Fund calendar quarter paid in December Balanced Fund - ------------------------------------------------------------------------------------ Short Term Bond Fund Declared daily and paid Normally declared and monthly paid in December Fixed Income Securities Fund National Municipal Bond Fund Oregon Municipal Bond Fund High Yield Fund - ------------------------------------------------------------------------------------ Columbia Daily Income Declared and paid daily Declared and paid in Company December (if any)
Unless you elect to receive your distributions in cash, income and capital gain distributions will be reinvested in additional shares on the dividend payment date. TAX EFFECT OF DISTRIBUTIONS SHAREHOLDERS OF FUNDS OTHER THAN MUNICIPAL BOND FUNDS. Distributions from the Funds are taxable unless a shareholder is exempt from federal or state income taxes or the investment is in a tax-advantaged account. The tax status of any distribution is the same regardless of how long a shareholder has been invested in the Fund and whether distributions are reinvested or taken in cash. Distributions by the Columbia stock funds will consist primarily of capital gains, and distributions by the Columbia bond funds and Columbia Daily Income Company will consist primarily of ordinary income. DISTRIBUTIONS AND TAXES 61 In general, distributions are taxable as follows: TAXABILITY OF DISTRIBUTIONS
TYPE OF DISTRIBUTION TAXABLE AT Dividend Income Ordinary Income Rate --------------------------------------------------------------------- Short-Term Capital Gains Ordinary Income Rate --------------------------------------------------------------------- Long-Term Capital Gains 20% or 10% (depending on your ordinary income tax bracket)
In January of each year, the Funds will send shareholders information detailing the net investment income and capital gains distributed in the prior year. "BUYING INTO A DISTRIBUTION." Purchasing a Fund's shares in a taxable account before a distribution by the Fund is sometimes called "buying into a distribution." You pay income taxes on a distribution whether you reinvest the distribution in shares of the Fund or receive it in cash. In addition, you pay taxes on the distribution whether the value of your investment decreased, increased or remained the same after you bought shares of the Fund. As securities of the Fund are sold at a profit during the period covered by a distribution (over the course of a year, for example), a Fund may build up capital gains. After subtracting any capital losses, the Fund distributes those gains to you and other shareholders, even if you did not own the shares when the gains occurred, and you incur the full tax liability on the distribution. SHAREHOLDERS OF MUNICIPAL BOND FUNDS. FEDERAL TAXES. A substantial portion of the net investment income distributed by the Municipal Bond Funds will be tax-exempt interest and will not be includible in a shareholder's gross income for federal income tax purposes. A portion of net income distributed by these Funds may, however, be taxable as ordinary income to the extent the distribution represents taxable interest received from sources other than municipal bonds or taxable accrued market discount on the sale or redemption of municipal bonds. Additionally, even though shareholders generally will not be taxed on distributions of tax-exempt interest, to the extent these Funds have net capital gains, shareholders will be taxed on the gain at the applicable capital gains rate. 62 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, whether the individual is 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 pay Oregon personal income tax on distributions from the Oregon Municipal Bond Fund that are derived from tax-exempt interest paid on the municipal securities of the State of Oregon, 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 are generally subject to Oregon personal income tax on distributions derived from other types of income received by the Oregon Municipal Bond Fund, including capital gains. Furthermore, it is expected that corporations subject to the Oregon corporation excise or income tax will be subject to that tax on the income from the Fund, including income that is exempt for federal income tax purposes. TAXABILITY OF TRANSACTIONS The sale of Fund shares or the exchange of Fund shares for shares of another Fund is considered a taxable event that may produce a gain or loss. Shareholders are responsible for any tax liabilities generated by their transactions. Local taxes are beyond the scope of this discussion. This section provides only a brief summary of federal and state tax information related to the Funds. You should consult your tax professional about the tax consequences of investing in the Funds. MORE ABOUT THE FUNDS - ----------------------------------------------------------- MORE ABOUT THE FUNDS 63 This section contains additional information about the risks, strategies and types of securities in which the Funds will principally invest. For a more detailed description of each Fund and its investment strategy, please request a copy of the Funds' Statement of Additional Information. PORTFOLIO SECURITIES INTERNATIONAL STOCK FUND. In managing currency exposure, the Fund may enter into forward currency contracts. A forward currency contract involves an agreement to purchase or sell a specified currency at a specified future price set at the time of the contract. When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. The Fund will only enter into forward contracts for hedging and not for purposes of speculation. Under normal market conditions, no more than 25% of the Fund's assets may be committed to currency exchange contracts. The Fund may also invest in derivatives. A discussion of derivatives is found on page 68, in "More about Risks." STRATEGIC VALUE FUND. In making decisions as to the securities to hold, the portfolio manager employs fundamental research and evaluates the issuer based on its financial statements and operations. The portfolio manager focuses on the quality of the issuer, the price of an individual issuer's common stock, and also on economic sectors. Market timing strategies may occasionally be employed. The portfolio manager measures a company's value by its P/E ratio, price/cash flow ratio, price/book ratio and price-to-private market values. A P/E ratio is the relationship between the price of a stock and earnings per share and it attempts to measure how much investors are willing to pay for future earnings. This figure is determined by dividing a stock's market price by the issuing company's earnings per share. Price/cash flow is the relationship between the price of a stock and the company's available cash from operations and helps provide an understanding about future cash flow. Before selecting individual securities for the Fund, the portfolio manager begins with a top-down, industry sector analysis. Then, in addition to measuring value by focusing on issuing companies' P/E ratios and price/cash flow ratios, factors the portfolio manager looks for in selecting investments include: - - Estimated private market value in excess of current stock price. Private market value is the price an investor would pay to own the entire company. 64 - - Management with demonstrated ability and commitment to the company. - - Low market valuations relative to earnings forecasts, book value, cash flow and sales. FIXED INCOME SECURITIES FUND, BALANCED FUND AND SHORT TERM BOND FUND. The Fixed Income Securities Fund, the Balanced Fund and the Short Term Bond Fund may invest in a variety of debt securities, including bonds, debentures, notes, equipment trust certificates and short-term obligations (those having maturities of 12 months or less), such as prime commercial paper and bankers' acceptances, domestic certificates of deposit, obligations of, or guaranteed by, the U.S. Government and its agencies and instrumentalities, mortgage-backed certificates, mortgage-backed securities and other similar securities representing ownership in a pool of loans. The Short Term Bond Fund may also invest in repurchase agreements with banks or securities dealers relating to these securities. Mortgage-backed securities are securities representing interests in "pools" of mortgages in which payments of both interest and principal on the securities are made monthly, in effect, "passing through" monthly payments made by the individual borrowers on the mortgage loans that underlie the securities (net of fees paid to the issuer or guarantor of the securities). Payment of principal and interest on some mortgage pass-through securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. Government (in the case of securities guaranteed by the Government National Mortgage Association ("GNMA")) or guaranteed by agencies or instrumentalities of the U.S. Government (in the case of securities guaranteed by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported only by the discretionary authority of the U.S. Government to purchase the agency's obligations). Mortgage pass-through securities created by non-governmental issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers) may be supported with various credit enhancements such as pool insurance, guarantees issued by governmental entities, a letter of credit from a bank or senior/subordinated structures. The Funds will usually invest some portion of their assets in collateralized mortgage obligations ("CMOs") issued by U.S. agencies or instrumentalities or in privately issued CMOs that carry an investment-grade rating. CMOs are hybrid instruments with characteristics of both mortgage-backed bonds and mortgage pass-through securities. Similar to a mortgage pass-through, interest and prepaid principal on a CMO are MORE ABOUT THE FUNDS 65 paid, in most cases, monthly. 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. CMOs are structured in multiple classes, with each class bearing a different stated maturity or interest rate. A Fund will only invest 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. Each Fund is permitted to invest in asset-backed securities, subject to the Fund's rating and quality requirements. Through the use of trusts and special purpose subsidiaries, various types of assets, including home equity and automobile loans and credit card and other types of receivables, as well as purchase contracts, financing leases and sales agreements entered into by municipalities, are being securitized in pass-through structures similar to the mortgage pass-through structures described above. MUNICIPAL BOND FUNDS. While each of the Funds attempts to invest 100% of its assets in tax-free municipal securities, each Fund may invest up to 20% of its assets in securities that pay taxable interest. In such circumstances, the Fund will invest in obligations of the U.S. Government or its agencies or instrumentalities; obligations of U.S. banks (including certificates of deposit, bankers' acceptances and letters of credit) that are members of the Federal Reserve System and that have capital surplus and undivided profits as of the date of their most recent published financial statements in excess of $100 million; commercial paper rated Prime 1 by Moody's, A-1 or better by S&P, or if not rated, issued by a company that, at the time of investment by the Fund, has an outstanding debt issue rated AA or better by S&P or Aa or better by Moody's; and repurchase agreements for any of these types of investments. TEMPORARY INVESTMENTS. Under adverse market conditions, each Fund (other than Columbia Daily Income Company) may depart from its principal investment strategies by taking defensive positions in response to adverse economic or market conditions. When a Fund assumes a temporary defensive position, it generally will not invest in securities designed to achieve its investment goal. 66 PORTFOLIO TURNOVER. With the exception of the Strategic Value Fund, which may, at times, utilize market timing techniques, each Fund generally intends to purchase securities for long-term investment rather than short-term gains. When circumstances warrant, however, a Fund may sell securities 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 one year or less, shareholders will be subject to taxes on these gains at ordinary income rates. See "Distributions and Taxes" on page 60. Historical portfolio turnover rates are shown under "Financial Highlights" in the description of each Fund at the beginning of this Prospectus. MORE ABOUT RISKS This section provides more information about the risks of investing in the Funds, which you should consider before you invest. REITs. The Real Estate Equity Fund will, and the other Columbia stock funds as part of their principal investment strategy may, invest in real estate investment trusts (REITs). Investment in REITs carries with it many of the same risks associated with direct ownership in real estate. In addition to these risks, equity REITs may be affected by changes in the value of the underlying property owned by the REIT, while mortgage REITs may be affected by the quality of the credit extended. Furthermore, REITs are dependent upon management skills, may not be diversified, and are subject to heavy cash flow dependency, defaults by borrowers, and self-liquidation. In addition, a REIT could fail to qualify for tax-free pass-through of income under the Internal Revenue Code or fail to maintain its exemption from registration under the Investment Company Act. The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. If a borrower or lessee defaults, a REIT may experience delays in enforcing its rights as mortgagee or lessor and may incur substantial costs associated with protection of its investments. INTEREST RATE RISK. Interest rate risk refers to the possibility that the net asset value of the fixed income portfolios may decline due to an increase in interest rates. When interest rates go up, the value of a bond fund's portfolio will likely decline because fixed income securities in the portfolio are paying a lower interest rate than what investors could obtain in the current market. When interest rates go down, the value of a bond fund's portfolio will likely rise, because fixed income securities in the portfolio are paying a higher interest rate than newly issued fixed income securities. The Interest rate risk refers to the possibility that the net asset value of the fixed income portfolios may decline due to an increase in interest rates. MORE ABOUT THE FUNDS 67 amount of change in the value of a bond fund's portfolio depends upon several factors, including the maturity date of the fixed income securities in the portfolio. In general, fixed income securities with longer maturities are more sensitive to interest rate changes than securities with shorter maturities. To compensate for the higher risk, bonds with longer maturities generally offer higher yields than bonds with shorter maturities. CREDIT RISK. The fixed income securities in the Funds' portfolios are subject to credit risk. Credit risk refers to the possibility that the issuer of a bond may fail to make timely payments of interest or principal. Other than the High Yield Fund and, to a lesser extent, the Fixed Income Securities Fund, the Balanced Fund and the Short Term Bond Fund, all three of which may invest in non-investment-grade securities, the Funds will only invest in investment-grade fixed income securities. Investment-grade securities are those issued by the U.S. Government, its agencies, and instrumentalities, as well as those rated as shown below by the following rating agencies: INVESTMENT-GRADE SECURITIES
LONG-TERM SHORT-TERM RATING AGENCY DEBT SECURITY DEBT SECURITY Standard & Poor's (S&P) At least BBB At least A-3 or SP-2 - --------------------------------------------------------------------------------- Moody's Investors Service, Inc. (Moody's) At least Baa At least Prime-3 or MIG 4/VMIG4
The Funds may also invest in securities unrated by these agencies if Columbia determines the security to be of equivalent investment quality to an investment-grade security. Investment-grade securities are subject to some credit risk. Bonds in the lowest-rated investment-grade category have speculative characteristics. Changes in economic conditions or other circumstances are more likely to weaken the ability of the issuer to make principal and interest payments on these bonds than is the case for high-rated bonds. Discussion concerning the risks of investing in non-investment-grade bonds can be found in the description of the High Yield Fund. In addition, the ratings of securities provided by Moody's and S&P are estimates by the rating agencies of the credit quality of the securities. The ratings may not take into account every risk related to whether interest or principal will be repaid on a timely basis. See the Statement of Additional Information for a complete discussion of bond ratings. NON-DIVERSIFIED RISK. The Oregon Municipal Bond Fund and the Technology Fund are "non-diversified," which means that they may invest a greater percentage of 68 their assets in the securities of a single issuer. As a result, they may be more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio might be. FOREIGN INVESTMENTS. Foreign equity securities include common stock and preferred stock, including securities convertible into equity securities, American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs). 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 they 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. 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. 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. In addition, to the extent that the securities are denominated in a foreign currency, 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 foreign securities are denominated. 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 the 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. DERIVATIVES. Certain Funds may also invest in stock futures and option contracts, which are traditional types of derivatives. A derivative is a financial contract whose value is based on (or "derived" from) a traditional security (such as a stock or bond), an asset (such as a commodity like gold), or a market index (such as the S&P 500 Index). Losses (or gains) involving derivatives can sometimes be substantial. Some forms of derivatives, such as exchange-traded futures and options on securities, MORE ABOUT THE FUNDS 69 commodities, or indexes, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. Non-standardized derivatives, on the other hand, tend to be more specialized or complex and may be harder to value. If used for speculation or as leveraged investments, derivatives can carry considerable risk. The Funds will not use derivatives for speculative purposes or as leveraged investment that may magnify gains or losses. ZERO-COUPON SECURITIES. The High Yield Fund and the municipal bond funds intend to invest in debt securities structured as zero-coupon 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. Zero-coupon securities are more volatile than cash pay securities. A Fund accrues income on these securities prior to the receipt of cash payments. Each 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. MORTGAGE RELATED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Short Term Bond Fund, the Balanced Fund and the Fixed Income Securities Fund may also invest in mortgage related securities and CMOs. Investments in mortgage related securities and CMOs are subject to risks relating to cash flow uncertainty; that is, the risk that actual prepayment on the underlying mortgages will not correspond to the prepayment rate assumed by the Fund (prepayment risk). Unscheduled or early payments on the underlying mortgages may shorten the securities' effective maturities and reduce their growth potential. A decline in interest rates may lead to a faster rate of repayment of the underlying mortgage and expose the Fund to a lower rate of return on reinvestment. To the extent that mortgage-backed securities are held by a Fund, the prepayment right of mortgages may limit 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 the non-callable debt securities. ALTERNATIVE MINIMUM TAX. If you are subject to the federal alternative minimum tax, you should be aware that up to 10% of each of the Municipal Bond Funds' net assets may be invested in debt securities, the interest on which is subject to the alternative minimum tax. 70 FOR YOUR INFORMATION You can find additional information on the Funds in the following documents: ANNUAL AND SEMIANNUAL REPORTS. While the Prospectus describes the Funds' potential investments, these reports detail the Funds' actual investments as of the report date. The reports include a discussion by Fund management of recent market conditions, economic trends, and Fund strategies that significantly affected Fund performance during the reporting period. STATEMENT OF ADDITIONAL INFORMATION ("SAI"). The SAI supplements the Prospectus and contains further information about each Fund and its investment restrictions, risks and policies. A current SAI for the Funds is on file with the Securities and Exchange Commission and is incorporated into this Prospectus by reference, which means it is considered part of this Prospectus. You can get free copies of the current annual/semiannual report and SAI, request other information, and discuss your questions about the Funds by contacting the Funds at: COLUMBIA FUNDS Columbia Financial Center 1301 S.W. Fifth Avenue Portland, Oregon 97201 Telephone: Portland (503) 222-3606 Nationwide 1-800-547-1707 www.columbiafunds.com Information about the Funds (including the SAI) can be reviewed and copied at the SEC's Public Reference room in Washington, D.C. Information about the operation of the public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information regarding the Funds are also on the SEC's Internet site at http://www.sec.gov; copies of this information may be obtained, after paying a duplicating fee, by electronic request at the SEC's e-mail address of publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: 811-6341 (CCSF) 811-1449 (CGF) 811-7024 (CISF) 811-4362 (CSF) 811-7671 (CSCF) 811-8256 (CREF) 811-10159 (CTF) 811-10161 (CSVF) 811-6338 (CBF) 811-4842 (CSTB) 811-3581 (CFIS) 811-7832 (CNBF) 811-3983 (CMBF) 811-7834 (CHYF) 811-2507 (CDIC) A TRADITION OF EXCELLENCE The Columbia Family of Funds was founded in 1967 with the introduction of Columbia Growth Fund. At that time, Columbia Growth was just one of a small number of no-load funds. Today, Columbia is proud to offer a choice of 15 no-load funds designed to provide the diversity, low cost and growth opportunities that investors seek to meet the future with greater confidence. Based in the heart of the Pacific Northwest, Columbia Funds Management Company and its affiliates, Columbia Management Company and Columbia Trust Company, have grown to become one of the largest investment managers in the region. Columbia provides investment management services through mutual funds, retirement plans and private accounts for institutions and high net worth individuals. Not part of Prospectus [BIRD IN CIRCLE SYMBOL] COLUMBIA FUNDS -- 1301 S.W. Fifth Avenue, Portland, Oregon 97201 -- -- DIRECTORS -- James C. George J. Jerry Inskeep, Jr. Patrick J. Simpson Richard L. Woolworth -- INVESTMENT ADVISOR -- COLUMBIA FUNDS MANAGEMENT COMPANY 1300 S.W. Sixth Avenue Portland, Oregon 97201 -- LEGAL COUNSEL -- STOEL RIVES LLP 900 S.W. Fifth Avenue, Suite 2300 Portland, Oregon 97204-1268 -- INDEPENDENT ACCOUNTANTS -- PRICEWATERHOUSECOOPERS LLP 1300 S.W. Fifth Avenue, Suite 3100 Portland, Oregon 97201 -- TRANSFER AGENT -- COLUMBIA TRUST COMPANY 1301 S.W. Fifth Avenue Portland, Oregon 97201 COLUMBIA FINANCIAL CENTER Funds distributed by PFPC Distributors, Inc. ================================================================================ 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 independent accountants appearing in the Annual Report are incorporated by reference into this Statement of Additional Information. 1 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........................................................ 81
February 25, 2002 2 - -------------------------------------------------------------------------------- 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, which may be changed by the Fund's Board of Directors without shareholder approval upon 30 days written notice. 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 the 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. 3 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 high yield and/or unrated securities, the Fund's success in achieving its investment objective is determined more heavily on the portfolio manager's creditworthiness analysis than if the Fund invested exclusively in higher-quality and 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 4 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 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 deposit 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 5 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 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 which 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 6 obligations is generally backed directly or indirectly by the U.S. Government. This 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. 7 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. 8 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 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. 9 Floating or Variable Rate Securities Floating or variable rate securities have interest rates that periodically change according to the rise and fall of a specified interest rate index or a specific fixed-income security that is used as a benchmark. The interest rate typically changes every six months, but for some securities the rate may fluctuate weekly, monthly, or quarterly. The index used is often the rate for 90- or 180-day Treasury Bills. Variable-rate and floating-rate securities may have interest rate ceilings or caps that fix the interest rate on such a security if, for example, a specified index exceeds a predetermined interest rate. If an interest rate on a security held by the 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. 10 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 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, 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 11 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 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 12 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. 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 13 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 Securities and Exchange Commission, 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. 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. 14 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 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. 15 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 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 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. 16 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 to 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 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 17 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. 18 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 Futures O O O O O O O O - ------------------------------------------------------------------------------------------------------------ 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 three 5%,O 5%,O 5%,O 10%,+ 10%,+ 5%,+ 10%,O 10%,O 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 19
- ---------------------------------------------------------------------------------------------------- CSTB CFIS CMBF CNMF CHYF CBE 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 Futures O X X X O O X - ---------------------------------------------------------------------------------------------------- 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 three 5%,O 5%,O NA NA 5%,+ 5%,O NA 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 20 - -------------------------------------------------------------------------------- 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. 21 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 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. 22 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. 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 23 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. 25 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). 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. 26 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 Securities and Exchange Commission. 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. 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. 27 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 28 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 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. 29 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. 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. 30 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. 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. 31 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. 32 COLUMBIA SHORT TERM BOND FUND, INC. The Short Term Bond Fund may not: 1. Issue senior securities, bonds, or debentures. 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 banker's acceptances with maturities not greater than one year. C/D's and banker's 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. 33 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. 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 banker's 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 34 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. 35 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. 36 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. 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 banker's 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 37 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. 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. 38 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. 39 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 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. 40 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, together with their principal business occupations. 41 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 and (71 years old) CMC Fund Trust - ----------------------------------------------------------------------------------------------------------------------- Jeff B. Curtis President and Served for 2 Years President of 1300 S.W. Sixth Avenue Assistant Columbia Funds Portland, OR 97201 Secretary Management Company (48 years old) and Columbia Management Co. - ----------------------------------------------------------------------------------------------------------------------- Thomas L. Thomsen Vice President Served for 2 Years Chief Executive 1300 S.W. Sixth Avenue Officer of Portland, OR 97201 Columbia Funds (57 years old) Management Company and Columbia Management Co. - ----------------------------------------------------------------------------------------------------------------------- Myron G. Child Vice President Served for 2 Years Vice President of 1300 S.W. Sixth Avenue Columbia Trust Portland, OR 97201 Company (61 years old) - ----------------------------------------------------------------------------------------------------------------------- Kathleen M. Griffin Vice President Served for 2 Years Vice President of 1300 S.W. Sixth Avenue Columbia Financial Portland, OR 97201 Center Incorporated (42 years old) - ----------------------------------------------------------------------------------------------------------------------- Jeffrey L. Lunzer Vice President Served for 2 Years Vice President of 1300 S.W. Sixth Avenue Columbia Funds Portland, OR 97201 Management Company (41 years old) and Columbia Management Co. - -----------------------------------------------------------------------------------------------------------------------
- ---------- 1 Mr. Inskeep is deemed to be interested because he is affiliated with the Adviser. 42 - -------------------------------------------------------------------------------------------------------------------- Susan J. Woodworth Vice President Served for 2 Years Vice President of 1300 S.W. Sixth Avenue Columbia Trust Portland, OR 97201 Company (49 years old) - -------------------------------------------------------------------------------------------------------------------- Mark A. Wentzien Secretary Served for 2 Years Vice President of 1300 S.W. Sixth Avenue Columbia Funds Portland, OR 97201 Management Company (41 years old) and Columbia Management Co. - --------------------------------------------------------------------------------------------------------------------
* 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. DISINTERESTED DIRECTORS:
- ----------------------------------------------------------------------------------------------------------------------- NAME, ADDRESS AND AGE POSITION(S) TERM OF OFFICE PRINCIPAL NUMBER OF OTHER HELD WITH AND LENGTH OF OCCUPATION(S) PORTFOLIOS IN DIRECTORSHIPS FUNDS TIME SERVED** DURING PAST 5 FUND HELD BY YEARS COMPLEX DIRECTOR OVERSEEN BY 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, The 23 The Regence 100 S.W. Market St. #1500 Regence Group Group, Regence Portland, OR 97207 BlueCross (60 years old) BlueShield of Oregon - -----------------------------------------------------------------------------------------------------------------------
There is no family relationship between any of the directors listed above. ** 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. 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 43 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 have adopted a nominating policy 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
44 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
45 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: - 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. 46 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 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
47 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. 48 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%
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%)
49
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%) COLUMBIA FIXED INCOME SECURITIES FUND PFPC Global Fund Services 4400 Computer Drive Westborough, Massachusetts 01581 9,213,871 (26.47%)
50
Shares Owned of Record Name and Address At January 31, 2002 - ---------------- ----------------------- 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. 51 - -------------------------------------------------------------------------------- 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. 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. 52 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. 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 53 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 54 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 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 Fund $956,873 $1,085,143 $724,858 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, 55 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 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, 56 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. 57 - -------------------------------------------------------------------------------- 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
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. 58 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 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 NAV next determined after acceptance of the purchase order by that Fund 59 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. 60 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 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. 61 - -------------------------------------------------------------------------------- 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. 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. 62 - -------------------------------------------------------------------------------- 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. 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. 63 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. 64 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 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 65 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 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. 66 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. 67 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. 68 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. 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. 69 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 - -------------------------------------------------------------------------------- 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. 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 70 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.: [(base period return + 1)365/7] -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: Yield = 2 [(a-b + 1)6 -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: 71 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. 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: P(1+T)n = ERV Where: P = a hypothetical initial payment of $1000 T = average annual total return 72 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: 73 P(1+T)n = ATVD Where: P = a hypothetical initial payment of $1000 T = average annual total return (after taxes on distributions) n = number of years ATVD = ending redeemable value of a hypothetical $1000 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 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: P(1+T)n = ATVDR Where: P = a hypothetical initial payment of $1000 T = average annual total return (after taxes on distributions and redemption) n = number of years ATVDR = ending redeemable value of a hypothetical $1000 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 74 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. 75 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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. 76 COLUMBIA SPECIAL FUND, INC. PART C OTHER INFORMATION Item 23. Exhibits (a) Registrant's Articles of Incorporation.(1) (b) Restated Bylaws.(1) (c) Specimen Stock Certificate.(1) (d) Investment Advisory Contract.(1) (e) Distribution Agreement.(4) (f) Not applicable. (g1) Custodian Contract with U S Bank N.A.(1) (g2) Global Custody Contract with J.P. Morgan Chase & Co., formerly known as The Chase Manhattan Bank.* (h1) Transfer Agent Agreement.(1) (h2) Amendment No. 1 to Transfer Agent Agreement.(2) (i) Opinion of Counsel - Not applicable for this filing. (j) Consent of Accountants.* (k) Omitted Financial Statements - Not applicable. (l) Not applicable. (m) 12b-1 Plan - Not applicable. (n) Rule 18f-3 Plan - Not applicable. (o) Not applicable. (p) Code of Ethics.* (q) All Powers of Attorney.(3) (1) Incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form N-1A, File No. 2-99207 filed February 23, 1998. (2) Incorporated herein by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A, File No. 2-99207 filed December 7, 1998. (3) Incorporated herein by reference to Post-Effective Amendment No. 18 to Columbia Short Term Bond Fund's Registration Statement on Form N-1A, File No. 33-8843 filed December 15, 2000. (4) Incorporated herein by reference to Post-Effective Amendment No. 18 to Registrant's Registration Statement on Form N-1A, File No. 2-99207 filed February 20, 2001. * Filed herewith. C-1 Item 24. Persons Controlled by or Under Common Control with Registrant The Registrant is controlled by its Board of Directors, whose members also serve as members of the Boards of Directors or Trustees of the following investment companies: Columbia Common Stock Fund, Inc., Columbia Balanced Fund Inc., Columbia International Stock Fund, Inc., Columbia Growth Fund, Inc., Columbia Small Cap Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia National Municipal Bond Fund, Inc., Columbia High Yield Fund, Inc., Columbia Technology Fund, Inc., Columbia Strategic Value Fund, Inc., and CMC Fund Trust, each of which, including the Registrant, is organized under the laws of the State of Oregon. The Registrant and all of the other investment companies listed above, except for CMC Fund Trust, have investment advisory contracts with Columbia Funds Management Company, an Oregon corporation ("the Adviser"). Each series of CMC Fund Trust has an investment advisory contract with Columbia Management Co., an Oregon corporation ("CMC"). FleetBoston Financial Corporation ("Fleet") is a publicly owned multibank holding company registered under the Bank Holding Company Act of 1956. CMC, the Adviser, Columbia Trust Company and Columbia Financial Center Incorporated are indirect wholly owned subsidiaries of Fleet. See "Management" and "Investment Advisory and Other Fees paid to Affiliates" in the Statement of Additional Information. Item 25. 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 26. Business and Other Connections of Investment Advisor Information regarding the businesses of the Advisor and its officers and directors is set forth under "Management" in the Prospectus and under "Management" and "Investment Advisory and Other Fees Paid to Affiliates" in the Statement of Additional Information and is incorporated herein by reference. Neither the Adviser nor any of its directors or officers has engaged in any business, profession, vocation or employment other than that of providing investment management services. Columbia Trust Company also acts as trustee and/or agent for the investment of the assets of pension and profit sharing plans in pooled accounts. Item 27. Principal Underwriters Pursuant to a distribution agreement with each of the Columbia Funds, including the Registrant, PFPC Distributors, Inc. is authorized to sell shares of each fund to the public. No commission or other compensation is received by PFPC Distributors, Inc. in connection with the sale of shares of the Columbia Funds. Certain information on each director and officer of PFPC Distributors, Inc. is set forth below: C-2
Name and Principal Positions and Offices Positions and Offices Business Address* with Provident Distributors with Registrant - --------------------- --------------------------- --------------------- Joseph T. Gramlich Chairman None Gary M. Gardner President and Chief Executive Officer None Bruno DiStefano Vice President None Susan K. Moscaritolo Vice President None Francis Koudelka Vice President None Elizabeth T. Holtsbery Vice President None Rita G. Adler Chief Compliance Officer None Christine A. Ritch Chief Legal Officer, Secretary and Clerk None Bradley A. Stearns Assistant Secretary and Assistant Clerk None John L. Wilson Assistant Secretary and Assistant Clerk None Douglas D. Castagna Controller None Craig D. Stokarski Treasurer None Robert F. Crouse Director None Susan G. Keller Director None
*The principal business address for each director and officer of PFPC Distributors, Inc. is: 3200 Horizon Drive King of Prussia, PA 19406 Item 28. Location of Accounts and Records The records required to be maintained under Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by the Registrant, Columbia Funds Management Company, and Columbia Trust Company at 1301 S.W. Fifth Avenue, Portland, Oregon 97201. Records relating to the Registrant's portfolio securities are also maintained by U S Bank N.A., 321 S.W. Sixth Avenue, Portland, Oregon 97208 and The Chase Manhattan Bank, 4 Chase Metrotech Center, 18th Floor, Brooklyn, New York 11245. Item 29. Management Services Not applicable. Item 30. Undertakings Not applicable. C-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that this Post-Effective Amendment meets all of the requirements for effectiveness under Rule 485(b) under the Securities Act of 1933 and Registrant has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Portland and State of Oregon on the 25th day of February, 2002. COLUMBIA SPECIAL FUND, INC. By JEFF B. CURTIS ------------------------------------------ Jeff B. Curtis President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below on the 25th day of February, 2002 by the following persons in the capacities indicated. (i) Principal executive officer: JEFF B. CURTIS President - -------------------------------------------- Jeff B. Curtis (ii) Principal accounting and financial officer: JEFFREY L. LUNZER Vice President - -------------------------------------------- Jeffrey L. Lunzer (iii) Directors: * JAMES C. GEORGE Director - -------------------------------------------- James C. George C-4 * J. JERRY INSKEEP, JR. Chairman and Director - -------------------------------------------- J. Jerry Inskeep, Jr. * PATRICK J. SIMPSON Director - -------------------------------------------- Patrick J. Simpson * RICHARD L. WOOLWORTH Director - -------------------------------------------- Richard L. Woolworth *By: JEFF B. CURTIS --------------------------------------- Jeff B. Curtis Attorney-In-Fact C-5 COLUMBIA SPECIAL FUND, INC. EXHIBIT INDEX Exhibit Description - ------- ----------- (a) Registrant's Articles of Incorporation.(1) (b) Restated Bylaws.(1) (c) Specimen Stock Certificate.(1) (d) Investment Advisory Contract.(1) (e) Distribution Agreement.(4) (f) Not applicable. (g1) Custodian Contract with U S Bank N.A.(1) (g2) Global Custody Agreement with J.P. Morgan Chase & Co., formerly The Chase Manhattan Bank.* (h1) Transfer Agent Agreement.(1) (h2) Amendment No. 1 to Transfer Agent Agreement.(2) (i) Opinion of Counsel - Not applicable for this filing. (j) Consent of Accountants.* (k) Omitted Financial Statements - Not applicable. (l) Not applicable. (m) 12b-1 Plan - Not applicable. (n) Rule 18f-3 Plan - Not applicable. (o) Not applicable. (p) Code of Ethics.* (q) All Powers of Attorney.(3) (1) Incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form N-1A, File No. 2-99207 filed February 23, 1998. (2) Incorporated herein by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A, File No. 2-99207 filed December 7, 1998. (3) Incorporated herein by reference to Post-Effective Amendment No. 18 to Columbia Short Term Bond Fund's Registration Statement on Form N-1A, File No. 33-8843 filed December 15, 2000. (4) Incorporated herein by reference to Post-Effective Amendment No. 18 to Registrant's Registration Statement on Form N-1A, File No. 2-99207 filed February 20, 2001. * Filed herewith. C-6 EX-99.G2 4 f78948ex99-g2.txt GLOBAL CUSTODY AGREEMENT DATED MAY 11, 2001 Exhibit g2 [CHASE LOGO] GLOBAL CUSTODY AGREEMENT BETWEEN [ COLUMBIA FUNDS ] AND THE CHASE MANHATTAN BANK May 11, 2001 i Global Custody Agreement - U.S. Law June 2000 version 233273v06 GLOBAL CUSTODY AGREEMENT This Agreement, dated May 11, 2001, is between THE CHASE MANHATTAN BANK ("BANK"), with a place of business at 3 Chase Metrotech Center, Brooklyn, New York 11245; and the Columbia Funds (each of the Columbia Funds listed on Exhibit A) ("CUSTOMER") with a place of business at 1300 SW Sixth Avenue, Portland, Oregon 97201. 1. INTENTION OF THE PARTIES; DEFINITIONS 1.1 INTENTION OF THE PARTIES. (a) This Agreement sets out the terms governing custodial, settlement and certain other associated services offered by Bank to Customer. Bank shall be responsible for the performance of only those duties that are set forth in this Agreement or expressly contained in Instructions that are consistent with the provisions of this Agreement and with Bank's operations and procedures. Customer acknowledges that Bank is not providing any legal, tax or investment advice in providing the services hereunder. (b) Investing in foreign markets may be a risky enterprise. The holding of Financial Assets and cash in foreign jurisdictions may involve risks of loss or other special features. Bank shall not be liable for any loss that results from the general risks of investing or Country Risk. 1.2 DEFINITIONS. (a) As used herein, the following terms have the meaning hereinafter stated. "ACCOUNT" has the meaning set forth in Section 2.1 of this Agreement. "AFFILIATE" means an entity controlling, controlled by, or under common control with, Bank. "AFFILIATED SUBCUSTODIAN" means a Subcustodian that is an Affiliate. "APPLICABLE LAW" means any statute, whether national, state or local, applicable in the United States or any other country, the rules of the treaty establishing the European Community, any other law, rule, regulation or interpretation of any governmental entity, any applicable common law, and any decree, injunction, judgment, order, ruling, or writ of any governmental entity. "AUTHORIZED PERSON" means any person (including an investment manager or other agent) who has been designated by written notice from Customer or its designated agent to act on behalf of Customer hereunder. Such persons shall continue to be 2 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 Authorized Persons until such time as Bank receives Instructions from Customer or its designated agent that any such person is no longer an Authorized Person. "BANK INDEMNITEES" means Bank, its Subcustodians, and their respective nominees, directors, officers, employees and agents. "BANK'S LONDON BRANCH" means the London branch office of The Chase Manhattan Bank. "CASH ACCOUNT" has the meaning set forth in Section 2.1(a)(ii). "CORPORATE ACTION" means any subscription right, bonus issue, stock repurchase plan, redemption, exchange, tender offer, or similar matter with respect to a Financial Asset in the Securities Account that require discretionary action by the holder, but does not include proxy voting. "COUNTRY RISK" means the risk of investing or holding assets in a particular country or market, including, but not limited to, risks arising from: nationalization, expropriation or other governmental actions; the country's financial infrastructure, including prevailing custody and settlement practices; laws applicable to the safekeeping and recovery of Financial Assets and cash held in custody; the regulation of the banking and securities industries, including changes in market rules; currency restrictions, devaluations or fluctuations; and market conditions affecting the orderly execution of securities transactions or the value of assets. "ENTITLEMENT HOLDER" means the person named on the records of a Securities Intermediary as the person having a Securities Entitlement against the Securities Intermediary. "FINANCIAL ASSET" means, as the context requires, either the asset itself or the means by which a person's claim to it is evidenced, including a Security, a security certificate, or a Securities Entitlement. "FINANCIAL ASSET" does not include cash. "INSTRUCTIONS" has the meaning set forth in Section 3.1 of this Agreement. "LIABILITIES" means any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind whatsoever (including, without limitation, reasonable attorneys', accountants', consultants' or experts' fees and disbursements). "SECURITIES" means stocks, bonds, rights, warrants and other negotiable and non-negotiable instruments, whether issued in certificated or uncertificated form, that are commonly traded or dealt in on securities exchanges or financial markets. "SECURITIES" also means other obligations of an issuer, or shares, participations and interests in an issuer recognized in the country in which it is issued or dealt in as a medium for investment and any other property as may be acceptable to Bank for the Securities Account. 3 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 "SECURITIES ACCOUNT" means each Securities custody account on Bank's records to which Financial Assets are or may be credited pursuant hereto. "SECURITIES DEPOSITORY" has the meaning set forth in Section 5.1 of this Agreement. "SECURITIES ENTITLEMENT" means the rights and property interest of an Entitlement Holder with respect to a Financial Asset as set forth in Part 5 of Article 8 of the Uniform Commercial Code of the State of New York, as the same may be amended from time to time. "SECURITIES INTERMEDIARY" means Bank, a Subcustodian, a Securities Depository, and any other financial institution which in the ordinary course of business maintains custody accounts for others and acts in that capacity. "SUBCUSTODIAN" has the meaning set forth in Section 5.1 and includes Affiliated Subcustodians. (b) All terms in the singular shall have the same meaning in the plural unless the context otherwise provides and visa versa. 2. WHAT BANK IS REQUIRED TO DO 2.1 SET UP ACCOUNTS. (a) Bank shall establish and maintain the following accounts ("ACCOUNTS"): (i) a Securities Account in the name of Customer for Financial Assets, which may be received by Bank or its Subcustodian for the account of Customer, including as an Entitlement Holder; and (ii) an account in the name of Customer ("CASH ACCOUNT") for any and all cash in any currency received by Bank or its Subcustodian for the account of Customer. Notwithstanding paragraph (ii), cash held in respect of those markets where Customer is required to have a cash account in its own name held directly with the relevant Subcustodian shall be held in that manner and shall not be part of the Cash Account. (b) At the request of Customer, additional Accounts may be opened in the future, which shall be subject to the terms of this Agreement. 2.2 CASH ACCOUNT. 4 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 Except as otherwise provided in Instructions acceptable to Bank, all cash held in the Cash Account shall be deposited during the period it is credited to the Accounts in one or more deposit accounts at Bank or at Bank's London Branch. Any cash so deposited with Bank's London Branch shall be payable exclusively by Bank's London Branch in the applicable currency, subject to compliance with any applicable laws, regulations, governmental decrees or similar orders including, without limitation, any restrictions on transactions in the applicable currency imposed by the country of the applicable currency. 2.3 SEGREGATION OF ASSETS; NOMINEE NAME. (a) Bank shall identify in its records that Financial Assets credited to Customer's Securities Account belong to Customer (except as otherwise may be agreed by Bank and Customer). (b) To the extent permitted by Applicable Law or market practice, Bank shall require each Subcustodian to identify in its own records that Financial Assets credited to Customer's Securities Account belong to customers of Bank, such that it is readily apparent that the Financial Assets do not belong to Bank or the Subcustodian. (c) Bank is authorized, in its discretion, to hold in bearer form, such Financial Assets as are customarily held in bearer form or are delivered to Bank or its Subcustodian in bearer form; and to register in the name of the Customer, Bank, a Subcustodian, a Securities Depository, or their respective nominees, such Financial Assets as are customarily held in registered form. Customer authorizes Bank or its Subcustodian to hold Financial Assets in omnibus accounts and shall accept delivery of Financial Assets of the same class and denomination as those deposited with Bank or its Subcustodian. 2.4 SETTLEMENT OF TRADES. When Bank receives an Instruction directing settlement of a trade in Financial Assets that includes all information required by Bank, Bank shall use reasonable care to effect such settlement as instructed. Settlement of purchases and sales of Financial Assets shall be conducted in accordance with prevailing standards of the market in which the transaction occurs. The risk of loss shall be Customer's whenever Bank delivers Financial Assets or payment in accordance with applicable market practice in advance of receipt or settlement of the expected consideration. In the case of the failure of Customer's counterparty to deliver the expected consideration as agreed, Bank shall contact the counterparty to seek settlement, but Bank shall not be obligated to institute legal proceedings, file proof of claim in any insolvency proceeding, or take any similar action. 2.5 CONTRACTUAL SETTLEMENT DATE ACCOUNTING. (a) Bank shall effect book entries on a "contractual settlement date accounting" basis as described below with respect to the settlement of trades in those markets where Bank 5 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 generally offers contractual settlement day accounting and shall notify Customer of these markets from time to time. (i) SALES: On the settlement date for a sale, Bank shall credit the Cash Account with the sale proceeds of the sale and transfer the relevant Financial Assets to an account pending settlement of the trade if not already delivered. (ii) PURCHASES: On the settlement date for the purchase (or earlier, if market practice requires delivery of the purchase price before the settlement date), Bank shall debit the Cash Account with the settlement monies and credit a separate account. Bank then shall post the Securities Account as awaiting receipt of the expected Financial Assets. Customer shall not be entitled to the delivery of Financial Assets that are awaiting receipt until Bank or a Subcustodian actually receives them. Bank reserves the right to restrict in good faith the availability of contractual day settlement accounting for credit reasons. (b) Bank may (in its absolute discretion) upon oral or written notification to Customer reverse any debit or credit made pursuant to Section 2.5(a) prior to a transaction's actual settlement, and Customer shall be responsible for any costs or liabilities resulting from such reversal. Customer acknowledges that the procedures described in this sub-section are of an administrative nature, and Bank does not undertake to make loans and/or Financial Assets available to Customer. 2.6 ACTUAL SETTLEMENT DATE ACCOUNTING. With respect to any sale or purchase transaction that is not posted to the Account on the contractual settlement date as referred to in Section 2.5, Bank shall post the transaction on the date on which the cash or Financial Assets received as consideration for the transaction is actually received by Bank. 2.7 INCOME COLLECTION; AUTOCREDIT. (a) Bank shall credit the Cash Account with income and redemption proceeds on Financial Assets in accordance with the times notified by Bank from time to time on or after the anticipated payment date, net of any taxes that are withheld by Bank or any third party. Where no time is specified for a particular market, income and redemption proceeds from Financial Assets shall be credited only after actual receipt and reconciliation. Bank may reverse such credits upon oral or written notification to Customer that Bank believes that the corresponding payment shall not be received by Bank within a reasonable period or such credit was incorrect. 6 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 (b) Bank shall make reasonable endeavors in its discretion to contact appropriate parties to collect unpaid interest, dividends or redemption proceeds, but neither Bank nor its Subcustodians shall be obliged to file any formal notice of default, institute legal proceedings, file proof of claim in any insolvency proceeding, or take any similar action. 2.8 FRACTIONS/ REDEMPTIONS BY LOT. Bank may sell fractional interests in Financial Assets and credit the Cash Account with the proceeds of the sale. If some, but not all, of an outstanding class of Financial Asset is called for redemption, Bank may allot the amount redeemed among the respective beneficial holders of such class of Financial Asset in any manner Bank deems to be fair and equitable. 2.9 PRESENTATION OF COUPONS; CERTAIN OTHER MINISTERIAL ACTS. Until Bank receives Instructions to the contrary, Bank shall: (a) present all Financial Assets for which Bank has received notice of a call for redemption or that have otherwise matured, and all income and interest coupons and other income items that call for payment upon presentation; (b) execute in the name of Customer such certificates as may be required to obtain payment in respect of Financial Assets; and (c) exchange interim or temporary documents of title held in the Securities Account for definitive documents of title. 2.10 CORPORATE ACTIONS. (a) Bank shall follow Corporate Actions and advise Customer of those Corporate Actions of which Bank's central corporate actions department receives notice from the issuer or from the Securities Depository in which such Financial Assets are maintained or notice published in publications and reported in reporting services routinely used by Bank for this purpose. (b) If an Authorized Person fails to provide Bank with timely Instructions with respect to any Corporate Action, neither Bank nor its Subcustodians or their respective nominees shall take any action in relation to that Corporate Action, except as otherwise agreed in writing by Bank and Customer or as may be set forth by Bank as a default action in the advice it provides under Section 2.10 (a) with respect to that Corporate Action. 2.11 PROXY VOTING. (a) Subject to and upon the terms of this sub-section, Bank shall provide Customer with information which it receives on matters to be voted upon at meetings of holders of 7 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 Financial Assets ("NOTIFICATIONS"), and Bank shall act in accordance with Customer's Instructions in relation to such Notifications ("THE ACTIVE PROXY VOTING SERVICE"). If information is received by Bank at its proxy voting department too late to permit timely voting by Customer, Bank's only obligation shall be to provide, so far as reasonably practicable, a Notification (or summary information concerning a Notification) on an "information only" basis. (b) The active proxy voting service is available only in certain markets, details of which are available from Bank on request. Provision of the active proxy voting service is conditional upon receipt by Bank of a duly completed enrollment form as well as additional documentation that may be required for certain markets. (c) Bank shall act upon Instructions to vote on matters referred to in a Notification, provided Instructions are received by Bank at its proxy voting department by the deadline referred to in the relevant Notification. If Instructions are not received in a timely manner, Bank shall not be obligated to provide further notice to Customer. (d) Bank reserves the right to provide Notifications or parts thereof in the language received. Bank shall attempt in good faith to provide accurate and complete Notifications, whether or not translated. (e) Customer acknowledges that Notifications and other information furnished pursuant to the active proxy voting service ("INFORMATION") are proprietary to Bank and that Bank owns all intellectual property rights, including copyrights and patents, embodied therein. Accordingly, Customer shall not make any use of such information except in connection with the active proxy voting service. (f) In markets where the active proxy voting service is not available or where Bank has not received a duly completed enrollment form or other relevant documentation, Bank shall not provide Notifications to Customer but shall endeavor to act upon Instructions to vote on matters before meetings of holders of Financial Assets where it is reasonably practicable for Bank (or its Subcustodians or nominees as the case may be) to do so and where such Instructions are received in time for Bank to take timely action (the "PASSIVE PROXY VOTING SERVICE"). (g) Customer acknowledges that the provision of proxy voting services (whether active or passive) may be precluded or restricted under a variety of circumstances. These circumstances include, but are not limited to: (i) the Financial Assets being on loan or out for registration, (ii) the pendency of conversion or another corporate action, or (iii) Financial Assets being held at Customer's request in a name not subject to the control of Bank or its Subcustodian, in a margin or collateral account at Bank or another bank or broker, or otherwise in a manner which affects voting, local market regulations or practices, or restrictions by the issuer. Additionally, in some cases Bank may be required to vote all shares held for a particular issue for all of Bank's customers in the same way. Bank shall inform Customer where this is the case. 8 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 (h) Notwithstanding the fact that Bank may act in a fiduciary capacity with respect to Customer under other agreements or otherwise hereunder, in performing active or passive voting proxy services Bank shall be acting solely as the agent of Customer, and shall not exercise any discretion with regard to such proxy services or vote any proxy except when directed by an Authorized Person. 2.12 STATEMENTS AND INFORMATION AVAILABLE ON-LINE. (a) Bank shall issue statements to Customer at times mutually agreed identifying the Financial Assets and cash in the Accounts. Bank also shall provide additional statements containing this information upon Customer's request. Additionally, Bank shall send (or make available on-line to) Customer an advice or notification of any transfers of cash or Financial Assets with respect to the Accounts. Bank shall not be liable with respect to any matter set forth in those portions of any such statement (or reasonably implied therefrom) to which Customer has not given Bank a written exception or objection within sixty (60) days of receipt of the statement. References in this Agreement to statements include any statements in electronic form. (b) Prices and other information obtained from third parties which may be contained in any statement sent to Customer have been obtained from sources Bank believes to be reliable. Bank does not, however, make any representation as to the accuracy of such information or that the prices specified necessarily reflect the proceeds that would be received on a disposal of the relevant Financial Assets. (c) Customer acknowledges that records and unaudited reports available to it on-line shall be unaudited and may not be accurate due to inaccurate pricing, delays in updating Account records, and other causes. Bank shall not be liable for any loss or damage arising out of the inaccuracy of any such records or unaudited reports accessed on-line. 2.13 ACCESS TO BANK'S RECORDS. Bank shall allow Customer's independent public accountants such reasonable access to the records of Bank relating to Financial Assets as is required in connection with their examination of books and records pertaining to Customer's affairs. Subject to restrictions under Applicable Law, Bank also shall obtain an undertaking to permit Customer's independent public accountants reasonable access to the records of any Subcustodian of Securities held in the Securities Account as may be required in connection with such examination. 2.14 MAINTENANCE OF FINANCIAL ASSETS AT BANK AND SUBCUSTODIAN LOCATIONS. (a) Unless Instructions require another location acceptable to Bank, Financial Assets shall be held in the country or jurisdiction in which their principal trading market is located, where such Financial Assets may be presented for payment, where such Financial 9 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 Assets were acquired, or where such Financial Assets are held. Bank reserves the right to refuse to accept delivery of Financial Assets or cash in countries and jurisdictions other than those referred to in Schedule 1 to this Agreement, as in effect from time to time. (b) Bank shall not be obliged to follow an Instruction to hold Financial Assets with, or have them registered or recorded in the name of, any person not chosen by Bank. However, if Customer does instruct Bank to hold Securities with or register or record Securities in the name of a person not chosen by Bank, the consequences of doing so are at Customer's own risk and Bank shall not be liable therefor. 2.15 TAX RECLAIMS. Bank shall provide tax reclamation services as provided in Section 8.2. 2.16 FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of Customer's trading and investment activity, Bank may, but shall not be obliged to, enter into spot or forward foreign exchange contracts with Customer, or an Authorized Person, and may also provide foreign exchange contracts and facilities through its Affiliates or Subcustodians. Instructions, including standing instructions, may be issued with respect to such contracts, but Bank may establish rules or limitations concerning any foreign exchange facility made available. In all cases where Bank, its Affiliates or Subcustodians enter into a master foreign exchange contract that covers foreign exchange transactions for the Accounts, the terms and conditions of that foreign exchange contract and, to the extent not inconsistent, this Agreement, shall apply to such transactions. 3. INSTRUCTIONS 3.1 ACTING ON INSTRUCTIONS; UNCLEAR INSTRUCTIONS. (a) Bank is authorized to act under this Agreement (or to refrain from taking action) in accordance with the instructions received by Bank, via telephone, telex, facsimile transmission, or other teleprocess or electronic instruction or trade information system acceptable to Bank ("Instructions"). Bank shall have no responsibility for the authenticity or propriety of any Instructions that Bank believes in good faith to have been given by Authorized Persons or which are transmitted with proper testing or authentication pursuant to terms and conditions that Bank may specify. Customer authorizes Bank to accept and act upon any Instructions received by it without inquiry. Customer shall indemnify the Bank Indemnitees against, and hold each of them harmless from, any Liabilities that may be imposed on, incurred by, or asserted against the Bank Indemnitees as a result of any action or omission taken in accordance with any Instructions or other directions upon which Bank is authorized to rely under the terms of this Agreement. 10 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 (b) Unless otherwise expressly provided, all Instructions shall continue in full force and effect until canceled or superseded. (c) Bank may (in its sole discretion and without affecting any part of this Section 3.1) seek clarification or confirmation of an Instruction from an Authorized Person and may decline to act upon an Instruction if it does not receive clarification or confirmation satisfactory to it. Bank shall not be liable for any loss arising from any delay while it seeks such clarification or confirmation. (d) In executing or paying a payment order Bank may rely upon the identifying number (e.g. Fedwire routing number or account) of any party as instructed in the payment order. Customer assumes full responsibility for any inconsistency between the name and identifying number of any party in payment orders issued to Bank in Customer's name. 3.2 CONFIRMATION OF ORAL INSTRUCTIONS/ SECURITY DEVICES. Any Instructions delivered to Bank by telephone shall promptly thereafter be confirmed in writing by an Authorized Person. Each confirmation is to be clearly marked "Confirmation." Bank shall not be liable for having followed such Instructions notwithstanding the failure of an Authorized Person to send such confirmation in writing or the failure of such confirmation to conform to the telephone Instructions received. Either party may record any of their telephonic communications. Customer shall comply with any security procedures reasonably required by Bank from time to time with respect to verification of Instructions. Customer shall be responsible for safeguarding any test keys, identification codes or other security devices that Bank shall make available to Customer or any Authorized Person. 3.3 INSTRUCTIONS; CONTRARY TO LAW/ MARKET PRACTICE. Bank need not act upon Instructions which it reasonably believes to be contrary to law, regulation or market practice but shall be under no duty to investigate whether any Instructions comply with Applicable Law or market practice. 3.4 CUT-OFF TIMES. Bank has established cut-off times for receipt of some categories of Instruction, which shall be made available to Customer. If Bank receives an Instruction after its established cut-off time, it shall attempt to act upon the Instruction on the day requested if Bank deems it practicable to do so or otherwise as soon as practicable after that day. 4. FEES, EXPENSES AND OTHER AMOUNTS OWING TO BANK 4.1 FEES AND EXPENSES. 11 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 Customer shall pay Bank for its services hereunder the fees set forth in Schedule 2 hereto or such other amounts as may be agreed upon in writing from time to time, together with Bank's reasonable out-of-pocket or incidental expenses, including, but not limited to, legal fees. Customer authorizes Bank to charge the Cash Account, for any such fees or expenses. 4.2 OVERDRAFTS. If a debit to any currency in the Cash Account results in a debit balance in that currency (without regard to any Cash Account investments) then Bank may, in its discretion, advance an amount equal to the overdraft and such an advance shall be deemed a loan to Customer, payable on demand, bearing interest at the rate charged by Bank from time to time, for overdrafts incurred by customers similar to Customer, from the date of such advance to the date of payment (both after as well as before judgment) and otherwise on the terms on which Bank makes similar overdrafts available from time to time. No prior action or course of dealing on Bank's part with respect to the settlement of transactions on Customer's behalf shall be asserted by Customer against Bank for Bank's refusal to make advances to the Cash Account or to settle any transaction for which Customer does not have sufficient available funds in the applicable currency in the Account. 4.3 BANK'S RIGHT OVER SECURITIES; SET-OFF. (a) Customer grants Bank a security interest in and a lien on the Financial Assets held in the Securities Account as security for any and all amounts which are now or become owing to Bank under any provision of this Agreement, whether or not matured or contingent ("Indebtedness"). (b) Bank shall be further entitled to set any such Indebtedness off against any cash or deposit account with Bank or any of its Affiliates of which Customer is the beneficial owner, regardless of the currency involved. Bank shall notify Customer in advance of any such charge unless Bank reasonably believes that it might prejudice its interests to do so and, in such event, Bank shall notify Customer promptly afterwards. 5. SUBCUSTODIANS, SECURITIES DEPOSITORIES, AND OTHER AGENTS 5.1 APPOINTMENT OF SUBCUSTODIANS; USE OF SECURITIES DEPOSITORIES. (a) Bank is authorized under this Agreement to act through and hold Customer's Financial Assets with subcustodians, being at the date of this Agreement the entities listed in Schedule 1 and/or such other entities as Bank may appoint as subcustodians ("SUBCUSTODIANS"). Bank shall use reasonable care in the selection and continued appointment of such Subcustodians. In addition, Bank and each Subcustodian may deposit Financial Assets with, and hold Financial Assets in, any securities depository, settlement system, dematerialized book entry system or similar system (together a "SECURITIES DEPOSITORY") on such terms as 12 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 such systems customarily operate and Customer shall provide Bank with such documentation or acknowledgements that Bank may require to hold the Financial Assets in such systems. (b) Any agreement Bank enters into with a Subcustodian for holding Bank's customers' assets shall provide that such assets shall not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or its creditors except a claim of payment for their safe custody or administration or, in the case of cash deposits, except for liens or rights in favor of creditors of the Subcustodian arising under bankruptcy, insolvency or similar laws, and that the beneficial ownership of such assets shall be freely transferable without the payment of money or value other than for safe custody or administration. Where a Subcustodian deposits Securities with a Securities Depository, Bank shall cause the Subcustodian to identify on its records as belonging to Bank, as agent, the Securities shown on the Subcustodian's account at such Securities Depository. The foregoing shall not apply to the extent of any special agreement or arrangement made by Customer with any particular Subcustodian. (c) Bank shall have no responsibility for any act or omission by (or the insolvency of) any Securities Depository. In the event Customer incurs a loss due to the negligence, willful misconduct, or insolvency of a Securities Depository, Bank shall make reasonable endeavors, in its discretion, to seek recovery from the Securities Depository. 5.2 LIABILITY FOR SUBCUSTODIANS. (a) Subject to Section 7.1(b), Bank shall be liable for direct losses incurred by Customer that result from: (i) the failure by the Subcustodian to use reasonable care in the provision of custodial services by it in accordance with the standards prevailing in the relevant market or from the fraud or willful default of such Subcustodian in the provision of custodial services by it; or (ii) the insolvency of any Affiliated Subcustodian. (b) Subject to Section 7.1(b) and Bank's duty to use reasonable care in the monitoring of a Subcustodian's financial condition as reflected in its published financial statements and other publicly available financial information concerning it, Bank shall not be responsible for the insolvency of any Subcustodian which is not a branch or an Affiliated Subcustodian. (c) Bank reserves the right to add, replace or remove Subcustodians. Bank shall give prompt notice of any such action, which shall be advance notice if practicable. Upon request by Customer, Bank shall identify the name, address and principal place of business of any Subcustodian and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian. 13 Global Custody Agreement - U.S. Law March 2001 version 233273:v07 5.3 USE OF AGENTS. (a) Bank may provide certain services under this Agreement through third parties. These third parties may be Affiliates. Except to the extent provided in Section 5.2 with respect to Subcustodians, Bank shall not be responsible for any loss as a result of a failure by any broker or any other third party that it selects and retains using reasonable care to provide ancillary services, such as pricing, proxy voting, and corporate action services, that it does not customarily provide itself. Nevertheless, Bank shall be liable for the performance of any such service provider selected by Bank that is an Affiliate to the same extent as Bank would have been liable if it performed such services itself. (b) Bank shall execute transactions involving Financial Assets of United States origin through a broker which is an Affiliate (i) in the case of the sale under Section 2.8 of a fractional interest or (ii) if an Authorized Person directs Bank to use the affiliated broker or otherwise requests that Bank select a broker for that transaction, unless, in either case, the Affiliate does not execute similar transactions in such Financial Assets. The affiliated broker may charge its customary commission (or retain its customary spread) with respect to either such transaction. 6. ADDITIONAL PROVISIONS RELATING TO CUSTOMER 6.1 REPRESENTATIONS OF CUSTOMER. Customer represents and warrants to Bank that: (i) it has full authority and power, and has obtained all necessary authorizations and consents, to deposit and control the Financial Assets and cash in the Accounts, to use Bank as its custodian in accordance with the terms of this Agreement and to incur indebtedness, pledge Financial Assets as contemplated by Section 4.3, and enter into foreign exchange transactions; and (ii) this Agreement is its legal, valid and binding obligation, enforceable in accordance with its terms and it has full power and authority to enter into and has taken all necessary corporate action to authorize the execution of this Agreement. Bank may rely upon the above or the certification of such other facts as may be required to administer Bank's obligations hereunder. 6.2 CUSTOMER TO PROVIDE CERTAIN INFORMATION TO BANK. Upon request, Customer shall promptly provide to Bank such information about itself and its financial status as Bank may reasonably request, including Customer's organizational documents and its current audited and unaudited financial statements. 6.3 CUSTOMER IS LIABLE TO BANK EVEN IF IT IS ACTING FOR ANOTHER PERSON. If Customer is acting as an agent for a disclosed or undisclosed principal in respect of any transaction, cash, or Financial Asset, Bank nevertheless shall treat Customer as its 14 Global Custody Agreement - U.S. Law March 2001 version principal for all purposes under this Agreement. In this regard, Customer shall be liable to Bank as a principal in respect of any transactions relating to the Account. The foregoing shall not affect any rights Bank might have against Customer's principal. 7. WHEN BANK IS LIABLE TO CUSTOMER 7.1 STANDARD OF CARE; LIABILITY. (a) Bank shall use reasonable care in performing its obligations under this Agreement. Bank shall not be in violation of this Agreement with respect to any matter as to which it has satisfied its obligation of reasonable care. (b) Bank shall be liable for Customer's direct damages to the extent they result from Bank's negligence or willful misconduct in performing its duties as set out in this Agreement and to the extent provided for in Section 5.2(a). Nevertheless, under no circumstances shall Bank be liable for any indirect, incidental, consequential or special damages (including, without limitation, lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the type of action in which such a claim may be brought, with respect to the Accounts or Bank's performance hereunder or its role as custodian. (c) Customer shall indemnify the Bank Indemnitees against, and hold them harmless from, any Liabilities that may be imposed on, incurred by or asserted against any of the Bank Indemnitees in connection with or arising out of Bank's performance under this Agreement, provided the Bank Indemnitees have not acted with negligence or engaged in fraud or willful misconduct in connection with the Liabilities in question. Nevertheless, Customer shall not be obligated to indemnify any Bank Indemnitee under the preceding sentence with respect to any Liability for which Bank is liable under Section 5.2 of this Agreement. (d) Without limiting Subsections 7.1 (a), (b) or (c), Bank shall have no duty or responsibility to: (i) question Instructions or make any suggestions to Customer or an Authorized Person regarding such Instructions; (ii) supervise or make recommendations with respect to investments or the retention of Financial Assets; (iii) advise Customer or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Section 2.7(b) of this Agreement; (iv) evaluate or report to Customer or an Authorized Person regarding the financial condition of any broker, agent or other party to which Bank is instructed to deliver Financial Assets or cash; or (v) review or reconcile trade confirmations received from brokers (and Customer or its Authorized Persons issuing Instructions shall bear any responsibility to review such confirmations against Instructions issued to and statements issued by Bank). 7.2 FORCE MAJEURE. 15 Global Custody Agreement - U.S. Law March 2001 version Bank shall maintain and update from time to time business continuation and disaster recovery procedures with respect to its global custody business that it determines from time to time meet reasonable commercial standards. Bank shall have no liability, however, for any damage, loss or expense of any nature that Customer may suffer or incur, caused by an act of God, fire, flood, civil or labor disturbance, war, act of any governmental authority or other act or threat of any authority (de jure or de facto), legal constraint, fraud or forgery, malfunction of equipment or software (except to the extent such malfunction is primarily attributable to Bank's negligence in maintaining the equipment or software), failure of or the effect of rules or operations of any external funds transfer system, inability to obtain or interruption of external communications facilities, or any cause beyond the reasonable control of Bank (including without limitation, the non-availability of appropriate foreign exchange). 7.3 BANK MAY CONSULT WITH COUNSEL. Bank shall be entitled to rely on, and may act upon the advice of professional advisers in relation to matters of law, regulation or market practice (which may be the professional advisers of Customer), and shall not be liable to Customer for any action reasonably taken or omitted pursuant to such advice. 7.4 BANK PROVIDES DIVERSE FINANCIAL SERVICES AND MAY GENERATE PROFITS AS A RESULT. Customer acknowledges that Bank or its Affiliates may have a material interest in transactions entered into by Customer with respect to the Account or that circumstances are such that Bank may have a potential conflict of duty or interest. For example, Bank or its Affiliates may act as a market maker in the Financial Assets to which Instructions relate, provide brokerage services to other customers, act as financial adviser to the issuer of such Financial Assets, act in the same transaction as agent for more than one customer, have a material interest in the issue of the Financial Assets, or earn profits from any of these activities. Customer acknowledges that Bank or its Affiliates may be in possession of information tending to show that the Instructions received may not be in the best interests of Customer. Bank is not under any duty to disclose any such information. 8. TAXATION 8.1 TAX OBLIGATIONS. (a) Customer confirms that Bank is authorized to deduct from any cash received or credited to the Cash Account any taxes or levies required by any revenue or governmental authority for whatever reason in respect of Customer's Accounts. (b) If Bank does not receive appropriate declarations, documentation and information then additional United Kingdom taxation shall be deducted from all income received in respect of the Financial Assets issued outside the United Kingdom (which shall for this purpose include United Kingdom Eurobonds) and any applicable United States tax 16 Global Custody Agreement - U.S. Law March 2001 version (including, but not limited to, non-resident alien tax) shall be deducted from United States source income. Customer shall provide to Bank such certifications, documentation, and information as it may require in connection with taxation, and warrants that, when given, this information is true and correct in every respect, not misleading in any way, and contains all material information. Customer undertakes to notify Bank immediately if any information requires updating or correcting. (c) Customer shall be responsible for the payment of all taxes relating to the Financial Assets in the Securities Account, and Customer shall pay, indemnify and hold Bank harmless from and against any and all liabilities, penalties, interest or additions to tax with respect to or resulting from, any delay in, or failure by, Bank (1) to pay, withhold or report any U.S. federal, state or local taxes or foreign taxes imposed on, or (2) to report interest, dividend or other income paid or credited to the Cash Account, whether such failure or delay by Bank to pay, withhold or report tax or income is the result of (x) Customer's failure to comply with the terms of this paragraph, or (y) Bank's own acts or omissions; provided however, Customer shall not be liable to Bank for any penalty or additions to tax due as a result of Bank's failure to pay or withhold tax or to report interest, dividend or other income paid or credited to the Cash Account solely as a result of Bank's negligent acts or omissions. 8.2 TAX RECLAIMS. (a) Subject to the provisions of this Section, Bank shall apply for a reduction of withholding tax and any refund of any tax paid or tax credits in respect of income payments on Financial Assets credited to the Securities Account that Bank believes may be available. (b) The provision of a tax reclamation service by Bank is conditional upon Bank receiving from Customer (i) a declaration of its identity and place of residence and (ii) certain other documentation (pro forma copies of which are available from Bank). If Financial Assets credited to the Account are beneficially owned by someone other than Customer, this information shall be necessary with respect to the beneficial owner. Customer acknowledges that Bank shall be unable to perform tax reclamation services unless it receives this information. (c) Bank shall perform tax reclamation services only with respect to taxation levied by the revenue authorities of the countries advised to Customer from time to time and Bank may, by notification in writing, in its absolute discretion, supplement or amend the countries in which the tax reclamation services are offered. Other than as expressly provided in this Section 8.2 Bank shall have no responsibility with regard to Customer's tax position or status in any jurisdiction. (d) Customer confirms that Bank is authorized to disclose any information requested by any revenue authority or any governmental body in relation to the processing of any tax reclaim. 9. TERMINATION 17 Global Custody Agreement - U.S. Law March 2001 version Either party may terminate this Agreement on sixty days' notice in writing to the other party. If Customer gives notice of termination, it must provide full details of the persons to whom Bank must deliver Financial Assets and cash. If Bank gives notice of termination, then Customer must, within sixty days, notify Bank of details of its new custodian, failing which Bank may elect (at any time after the sixty day notice period) either to retain the Financial Assets and cash until such details are given, continuing to charge fees due (in which case Bank's sole obligation shall be for the safekeeping of the Financial Assets and cash), or deliver the Financial Assets and cash to Customer. Bank shall in any event be entitled to deduct any amounts owing to it prior to delivery of the Financial Assets and cash (and, accordingly, Bank shall be entitled to sell Financial Assets and apply the sale proceeds in satisfaction of amounts owing to it). Customer shall reimburse Bank promptly for all out-of-pocket expenses it incurs in delivering Financial Assets upon termination. Termination shall not affect any of the liabilities either party owes to the other arising under this Agreement prior to such termination. 10. MISCELLANEOUS 10.1 NOTICES. Notices (other than Instructions) shall be served by registered mail or hand delivery to the address of the respective parties as set out on the first page of this Agreement, unless notice of a new address is given to the other party in writing. Notice shall not be deemed to be given unless it has been received. 10.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on each of the parties' successors and assigns, but the parties agree that neither party can assign its rights and obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld. 10.3 INTERPRETATION. Headings are for convenience only and are not intended to affect interpretation. References to sections are to sections of this Agreement and references to sub-sections and paragraphs are to sub-sections of the sections and paragraphs of the sub-sections in which they appear. 10.4 ENTIRE AGREEMENT. (a) The following Rider(s) are incorporated into this Agreement: X Cash Trade Execution --- 18 Global Custody Agreement - U.S. Law March 2001 version Accounting Services --- X Mutual Fund --- X Domestic and Global --- (b) This Agreement, including the Schedules, Exhibits, and Riders (and any separate agreement which Bank and Customer may enter into with respect to any Cash Account), sets out the entire Agreement between the parties in connection with the subject matter, and this Agreement supersedes any other agreement, statement, or representation relating to custody, whether oral or written. Amendments must be in writing and signed by both parties. 19 Global Custody Agreement - U.S. Law March 2001 version 10.5 INFORMATION CONCERNING DEPOSITS AT BANK. (a) Bank's London Branch is a member of the United Kingdom Deposit Protection Scheme (the "SCHEME") established under Banking Act 1987 (as amended). The Scheme provides that in the event of Bank's insolvency payments may be made to certain customers of Bank's London Branch. Payments under the Scheme are limited to 90% of a depositor's total cash deposits subject to a maximum payment to any one depositor of L18,000 (or 20,000 euros if greater). Most deposits denominated in sterling and other European Economic Area Currencies and euros made with Bank within the United Kingdom are covered. Further details of the Scheme are available on request. (b) In the event that Bank incurs a loss attributable to Country Risk with respect to any cash balance it maintains on deposit at a Subcustodian or other correspondent bank in regard to its global custody or trust businesses in the country where the Subcustodian or other correspondent bank is located, Bank may set such loss off against Customer's Cash Account to the extent that such loss is directly attributable to Customer's investments in that market and, to the extent that such loss is not directly attributable to any of Bank's customers' investments in that market, Bank may set such loss off in a pro-rata manner against its customers' cash account holdings in that currency, including such holdings in Customer's Cash Account. 10.6 CONFIDENTIALITY. Bank shall not disclose any confidential information concerning its relationship with Customer under this Agreement except as is reasonably necessary to provide services to Customer, as required by law or regulation or the organizational documents of the issuer of any Financial Asset, or otherwise with the consent of Customer. Customer agrees to keep this Agreement confidential and, except where disclosure is required by law or regulation, shall only disclose it (or any part of it) with the prior written consent of Bank. 10.7 INSURANCE. Bank shall not be required to maintain any insurance coverage for the benefit of Customer. 10.8 GOVERNING LAW AND JURISDICTION. CERTIFICATION OF RESIDENCY. This Agreement shall be construed, regulated, and administered under the laws of the United States or State of New York, as applicable, without regard to New York's principles regarding conflict of laws. The United States District Court for the Southern District of New York shall have the sole and exclusive jurisdiction over any lawsuit or other judicial proceeding relating to or arising from this Agreement. If that court lacks federal subject matter jurisdiction, the Supreme Court of the State of New York, New York County shall have sole and exclusive jurisdiction. Either of these courts shall have proper 20 Global Custody Agreement - U.S. Law March 2001 version venue for any such lawsuit or judicial proceeding, and the parties waive any objection to venue or their convenience as a forum. The parties agree to submit to the jurisdiction of any of the courts specified and to accept service of process to vest personal jurisdiction over them in any of these courts. The parties further hereby knowingly, voluntarily and intentionally waive, to the fullest extent permitted by applicable law, any right to a trial by jury with respect to any such lawsuit or judicial proceeding arising or relating to this Agreement or the transactions contemplated hereby. Customer certifies that it is a resident of the United States and shall notify Bank of any changes in residency. Bank may rely upon this certification or the certification of such other facts as may be required to administer Bank's obligations hereunder. Customer shall indemnify Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications. 10.9 SEVERABILITY AND WAIVER. (a) If one or more provisions of this Agreement are held invalid, illegal or unenforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions shall not in any way be affected or impaired. (b) Except as otherwise provided herein, no failure or delay on the part of either party in exercising any power or right hereunder operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision of this Agreement, or waiver of any breach or default, is effective unless in writing and signed by the party against whom the waiver is to be enforced. 10.10 COUNTERPARTS. This Agreement may be executed in several counterparts each of which shall be deemed to be an original and together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. FUNDS LISTED ON EXHIBIT A By: --------------------------------------- Title: President Date: May 11, 2001 21 Global Custody Agreement - U.S. Law March 2001 version THE CHASE MANHATTAN BANK By: --------------------------------------- Title: Date: EXHIBIT A Columbia International Stock Fund, Inc.* Columbia Special Fund, Inc. Columbia Growth Fund, Inc. Columbia Common Stock Fund, Inc. Columbia Balanced Fund, Inc. Columbia High Yield Fund, Inc. Columbia Real Estate Fund, Inc. Columbia Small Cap Fund, Inc. *This Fund has a Cash Trade Execution Agreement 22 Global Custody Agreement - U.S. Law March 2001 version Investment Company Rider to Global Custody Agreement Between The Chase Manhattan Bank and Columbia Funds effective May 11, 2001 The following modifications are made to the Agreement: A. Add a new Section 2.17 to the Agreement as follows: "2.17. COMPLIANCE WITH SECURITIES AND EXCHANGE COMMISSION ("SEC") RULE 17f-5 ("RULE 17f-5"). (a) Customer's board of directors (or equivalent body) (hereinafter 'Board') hereby delegates to Bank, and, except as to the country or countries as to which Bank may, from time to time, advise Customer that it does not accept such delegation, Bank hereby accepts the delegation to it, of the obligation to perform as Customer's 'Foreign Custody Manager' (as that term is defined in rule 17f-5(a)(3) as promulgated under the Investment Company Act of 1940, as amended ("1940 Act")), including for the purposes of: (i) selecting Eligible Foreign Custodians (as that term is defined in SEC rule 17f-5(a)(1), and as the same may be amended from time to time, or that have otherwise been exempted pursuant to an SEC exemptive order) to hold foreign Financial Assets and Cash, (ii) evaluating the contractual arrangements with such Eligible Foreign Custodians (as set forth in SEC rule 17f-5(c)(2)), (iii) monitoring such foreign custody arrangements (as set forth in rule 17f-5(c)(3)). (b) In connection with the foregoing, Bank shall: (i) provide written reports notifying Customer's Board of the placement of Financial Assets and Cash with particular Eligible Foreign Custodians and of any material change in the arrangements with such Eligible Foreign Custodians, with such reports to be provided to Customer's Board at such times as the Board deems reasonable and appropriate based on the circumstances of Customer's foreign custody arrangements (and until further notice from Customer such reports shall be provided not less than quarterly with respect to the placement of Financial Assets and Cash with particular Eligible Foreign Custodians and with reasonable promptness upon the occurrence of any material change in the arrangements with such Eligible Foreign Custodians); (ii) exercise such reasonable care, prudence and diligence in performing as Customer's Foreign Custody Manager as a person having responsibility for the safekeeping of foreign Financial Assets and cash would exercise; (iii) in selecting an Eligible Foreign Custodian, first have determined that foreign Financial Assets and cash placed and maintained in the safekeeping of such Eligible 23 Global Custody Agreement - U.S. Law June 2000 version 233273:v06 Foreign Custodian shall be subject to reasonable care, based on the standards applicable to custodians in the relevant market, after having considered all factors relevant to the safekeeping of such foreign Financial Assets and cash, including, without limitation, those factors set forth in SEC rule 17f-5(c)(1)(i)-(iv); (iv) determine that the written contract with an Eligible Foreign Custodian requires that the Eligible Foreign Custodian shall provide reasonable care for foreign Financial Assets and Cash based on the standards applicable to custodians in the relevant market. (v) have established a system to monitor the continued appropriateness of maintaining foreign Financial Assets and cash with particular Eligible Foreign Custodians and of the governing contractual arrangements; it being understood, however, that in the event that Bank shall have determined that the existing Eligible Foreign Custodian in a given country would no longer afford foreign Financial Assets and cash reasonable care and that no other Eligible Foreign Custodian in that country would afford reasonable care, Bank shall promptly so advise Customer and shall then act in accordance with the Instructions of Customer with respect to the disposition of the affected foreign Financial Assets and cash. Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain foreign Financial Assets and cash on behalf of Customer with Eligible Foreign Custodians pursuant to a written contract deemed appropriate by Bank. (c) Except as expressly provided herein, Customer shall be solely responsible to assure that the maintenance of foreign Financial Assets and cash hereunder complies with the rules, regulations, interpretations and exemptive orders as promulgated by or under the authority of the SEC. (d) Bank represents to Customer that it is a U.S. Bank as defined in Rule 17f-5(a)(7). Customer represents to Bank that: (1) the foreign Financial Assets and cash being placed and maintained in Bank's custody are subject to the 1940 Act, as the same may be amended from time to time; (2) its Board: (i) has determined that it is reasonable to rely on Bank to perform as Customer's Foreign Custody Manager (ii) or its investment adviser shall have determined that Customer may maintain foreign Financial Assets and cash in each country in which Customer's Financial Assets and cash shall be held hereunder and determined to accept Country Risk. Nothing contained herein shall require Bank to make any selection or to engage in any monitoring on behalf of Customer that would entail consideration of Country Risk. (e) Bank shall provide to Customer such information relating to Country Risk as is specified in Appendix 1 hereto. Customer hereby acknowledges that: (i) such information is solely designed to inform Customer of market conditions and procedures and is not intended as a recommendation to invest or not invest in particular markets; and (ii) Bank 24 Global Custody Agreement - U.S. Law June 2000 version has gathered the information from sources it considers reliable, but that Bank shall have no responsibility for inaccuracies or incomplete information. B. Add a new Section 2.18 to the Agreement as follows: 2.18. COMPLIANCE WITH SEC RULE 17f-7 ("RULE 17f-7"). (a) Bank shall, for consideration by Customer, provide an analysis of the custody risks associated with maintaining Customer's Foreign Assets with each Eligible Securities Depository used by Bank as of the date hereof (or, in the case of an Eligible Securities Depository not used by Bank as of the date hereof, prior to the initial placement of Customer's foreign Assets at such Depository) and at which any foreign Assets of Customer are held or are expected to be held. The foregoing analysis will be provided to Customer at Bank's Website. In connection with the foregoing, Customer shall notify Bank of any Eligible Securities Depositories at which it does not choose to have its Foreign Assets held. Bank shall monitor the custody risks associated with maintaining Customer's foreign Assets at each such Eligible Securities Depository on a continuing basis and shall promptly notify Customer or its adviser of any material changes in such risks. (b) Bank shall exercise reasonable care, prudence and diligence in performing the requirements set forth in Section 2.18(a) above. (c) Based on the information available to it in the exercise of diligence, Bank shall determine the eligibility under rule 17f-7 of each depository before including it on Schedule 3 hereto and shall promptly advise Customer if any Eligible Securities Depository ceases to be eligible. (Eligible Securities Depositories used by Bank as of the date hereof are set forth in Schedule 3 hereto, and as the same may be amended on notice to Customer from time to time.) (d) Bank need not commence performing any of the duties set forth in this Section 2.18 prior to May 11, 2001, but Bank shall advise Customer if it is prepared to commence such duties prior to such date as to particular depositories. D. Add the following after the first sentence of Section 5.1(a) of the Agreement: "At the request of Customer, Bank may, but need not, add to Schedule 1 an Eligible Foreign Custodian where Bank has not acted as Foreign Custody Manager with respect to the selection thereof. Bank shall notify Customer in the event that it elects to add any such entity." E. Add the following language as Sections 5.1(d) and (e) of the Agreement: (d) The term Subcustodian as used herein shall mean the following: (i) a 'U.S. Bank,' which shall mean a U.S. bank as defined in SEC rule 17f5(a)(7); 25 Global Custody Agreement - U.S. Law June 2000 version (ii) an 'Eligible Foreign Custodian,' which shall mean: (i) a banking institution or trust company, incorporated or organized under the laws of a country other than the United States, that is regulated as such by that country's government or an agency thereof, and (ii) a majority-owned direct or indirect subsidiary of a U.S. bank or bank holding company which subsidiary is incorporated or organized under the laws of a country other than the United States. In addition, an Eligible Foreign Custodian shall also mean any other entity that shall have been so qualified by exemptive order, rule or other appropriate action of the SEC. (iii) For purposes of clarity, it is agreed that as used in Section 5.2(a), the term Subcustodian shall not include any Eligible Foreign Custodian as to which Bank has not acted as Foreign Custody Manager. (e) The term 'securities depository' as used herein when referring to a securities depository located outside the U.S. shall mean: an "Eligible Securities Depository" which, in turn, shall have the same meaning as in rule 17f-7(b)(1)(i)-(vi) as the same may be amended from time to time, or that has otherwise been made exempt pursuant to an SEC exemptive order; provided that, prior to the compliance date with rule 17f-7 for a particular securities depository the term "securities depositories" shall be as defined in (a)(1)(ii)-(iii) of the 1997 amendments to rule 17f-5. (f) The term "securities depository" as used herein when referring to a securities depository located in the U.S. shall mean a "securities depository" as defined in SEC rule 17f-4(a). 26 Global Custody Agreement - U.S. Law June 2000 version Schedule 3 ELIGIBLE SECURITIES DEPOSITORIES
COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- ARGENTINA CVSA Equity, Corporate Debt, Government Debt (Caja de Valores S.A.) ARGENTINA CRYL Government Debt (Central de Registration y Liquidacion de Instrumentos de Endeudamiento Publico) AUSTRALIA AUSTRACLEAR LIMITED Corporate Debt, Money Market, Semi-Government Debt AUSTRALIA CHESS Equity (Clearing House Electronic Sub-register System) AUSTRALIA RITS Government Debt (Reserve Bank of Australia/Reserve Bank Information and Transfer System) AUSTRIA OEKB Equity, Corporate Debt, Government Debt (Oesterreichische Kontrollbank AG) BELGIUM CIK Equity, Corporate Debt (Caisse Interprofessionnelle de Depots et de Virements de Titres S.A.) BELGIUM NBB Corporate Debt, Government Debt (National Bank of Belgium) BRAZIL CBLC Equity (Companhia Brasileira de Liquidacao e Custodia) BRAZIL CETIP Corporate Debt (Central de Custodia e Liquidacao Financiera de Titulos Privados) BRAZIL SELIC Government Debt (Sistema Especial de Liquidacao e Custodia) BULGARIA BNB Government Debt (Bulgaria National Bank) BULGARIA CDAD Equity, Corporate Debt (Central Depository A.D.) CANADA CDS Equity, Corporate, Government Debt (The Canadian Depository for Securities Limited)
This document is for information only and is designed to keep you abreast of market conditions and procedures. This document is intended neither to influence your investment decisions nor to amend or supplement any agreement governing your relations with JP Morgan Chase. JP Morgan Chase has gathered the information from a source it considers reliable, however, it cannot be responsible for inaccuracies, incomplete information or updating of the information furnished hereby. JP Morgan Investor Services Network Management 1 April 19, 2001
COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- CHILE DCV Equity, Corporate Debt, Government Debt (Deposito Central de Valores S.A.) CHINA, SHANGHAI SSCCRC Equity (Shanghai Securities Central Clearing and Registration Corporation) CHINA, SHENZHEN SSCC Equity (Shenzhen Securities Clearing Company, Limited) COLOMBIA DCV Government Debt (Deposito Central de Valores) COLOMBIA DECEVAL Equity, Corporate Debt, Government Debt (Deposito Centralizado de Valores de Colombia S.A.) CROATIA SDA Equity, Government Debt (Central Depository Agency Inc. - Stredisnja depozitarna agencija d.d.) CROATIA MINISTRY OF FINANCE OF THE REPUBLIC OF CROATIA Short-term debt issued by the Ministry of Finance. CROATIA CNB Short-term debt issued by the National Bank of (Croatian National Bank) Croatia. CZECH REPUBLIC SCP Equity, Corporate Debt, Government Debt (Stredisko cennych papiru) CZECH REPUBLIC CNB Government Debt (Czech National Bank) DENMARK VP Equity, Corporate Debt, Government Debt (Vaerdipapircentralen A/S) EGYPT MCSD Equity, Corporate Debt (Misr for Clearing, Settlement and Depository, S.A.E.) ESTONIA ECDS Equity, Corporate Debt, Government Debt (Estonian Central Depository for Securities Limited - Eesti Vaatpaberite Keskdepositoorium) EUROMARKET DCC Euro-CDs (The Depository and Clearing Centre) EUROMARKET CLEARSTREAM Euro-Debt (Clearstream Banking, S.A.)
Global Custody Agreement - U.S. Law June 2000 version
COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- EUROMARKET EUROCLEAR Euro-Debt FINLAND APK Equity, Corporate Debt, Government Debt (Finnish Central Securities Depository Limited) FRANCE EUROCLEAR FRANCE Equity, Corporate Debt, Government Debt GERMANY CLEARSTREAM Equity, Corporate Debt, Government Debt (Clearstream Banking AG) GREECE CSD Equity, Corporate Debt (Central Securities Depository S.A.) GREECE BOG Government Debt (Bank of Greece) HONG KONG HKSCC Equity (Hong Kong Securities Clearing Company Limited) HONG KONG CMU Corporate Debt, Government Debt (Central Moneymarkets Unit) HUNGARY KELER Equity, Corporate Debt, Government Debt (Central Clearing House and Depository (Budapest) Ltd. - Kozponti Elszamolohaz es Ertektar (Budapest) Rt.) INDIA NSDL Equity, Corporate Debt, Government Debt (National Securities Depository Limited) INDIA CDSL Equity (Central Depository Services (India) Limited) INDIA RBI Government Debt (Reserve Bank of India) INDONESIA KSEI Equity, Corporate Debt (PT Kustodian Sentral Efek Indonesia) IRELAND CREST Equity, Corporate Debt (CRESTCo Limited) ISRAEL TASE CLEARING HOUSE Equity, Corporate Debt, Government Debt (Tel Aviv Stock Exchange Clearing House) ITALY MONTE TITOLI S.P.A. Equity, Corporate Debt, Government Debt ITALY BANCA D'ITALIA Government Debt
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COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- IVORY COAST DC/BR Equity (Le Depositaire Central / Banque de Reglement) JAPAN JASDEC Equity, Convertible Debt (Japan Securities Depository Center) JAPAN BOJ Registered Government Debt (Bank of Japan) KAZAHKSTAN CSD Equity (Central Securities Depository CJSC) KENYA CBCD Government Debt (Central Bank Central Depository) LATVIA LCD Equity, Corporate Debt, Government Debt (Latvian Central Depository) LEBANON MIDCLEAR S.A.L. Equity (Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East S.A.L.) LITHUANIA CSDL Equity, Corporate Debt, Government Debt (Central Securities Depository of Lithuania) LUXEMBOURG CLEARSTREAM Equity (Clearstream Banking S.A.) MALAYSIA MCD Equity, Corporate Debt, Government Debt (Malaysian Central Depository Sdn. Bhd.) MAURITIUS CDS Equity, Corporate Debt (Central Depository and Settlement Company Limited) MEXICO INDEVAL Equity, Corporate Debt, Government Debt (S.D. INDEVAL S.A. de C.V.) MOROCCO MAROCLEAR Equity, Corporate Debt, Government Debt NETHERLANDS NECIGEF Equity, Corporate Debt, Government Debt (Nederlands Centraal Insituut voor Giraal Effectenverkeer B.V.) NEW ZEALAND NZCSD Equity, Corporate Debt, Government Debt (New Zealand Central Securities Depository)
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COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- NIGERIA CSCS Equity, Corporate Debt, Government Debt (Central Securities Clearing System Limited) NORWAY VPS Equity, Corporate Debt, Government Debt (Verdipapirsentralen) OMAN MDSRC Equity, Corporate Debt (The Muscat Depository and Securities Registration Company, S.A.O.C.) PAKISTAN CDC Equity, Corporate Debt (Central Depository Company of Pakistan Limited) PAKISTAN SBP Government Debt (State Bank of Pakistan) PERU CAVALI Equity, Corporate Debt, Government Debt (CAVALI ICLV S.A.) PHILIPPINES PCD Equity (Philippine Central Depository, Inc.) PHILIPPINES ROSS Government Debt (Bangko Sentral ng Pilipinas / Register of Scripless Securities) POLAND NDS Equity, Long-Term Government Debt (National Depository for Securities S.A.) POLAND CRT Short-Term Government Debt (Central Registry of Treasury-Bills) PORTUGAL CVM Equity, Corporate Debt, Government Debt (Central de Valores Mobiliarios e Sistema de Liquidacao e Compensacao) ROMANIA SNCDD Equity (National Company for Clearing, Settlement and Depository for Securities) ROMANIA BSE Equity (Bucharest Stock Exchange Registry) RUSSIA VTB Equity, Corporate Debt, Government Debt (Vneshtorgbank) (Ministry of Finance Bonds)
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COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- RUSSIA NDC Equity, Corporate Debt, Government Debt (National Depository Centre) RUSSIA DCC Equity (Depository Clearing Company) SINGAPORE CDP Equity, Corporate Debt (The Central Depository (Pte) Limited) SINGAPORE SGS Government Debt (Monetary Authority of Singapore / Singapore Government Securities Book-Entry System) SLOVAK REPUBLIC SCP Equity, Corporate Debt, Government Debt (Stredisko cennych papierov SR Bratislava, a.s.) SLOVAK REPUBLIC NBS Government Debt (National Bank of Slovakia) SLOVENIA KDD Equity, Corporate Debt, Government Debt (Centralna klirinsko depotna druzba d.d.) SOUTH AFRICA CDL Corporate Debt, Government Debt (Central Depository (Pty) Limited) SOUTH AFRICA STRATE Equity (Share Transactions Totally Electronic) SOUTH KOREA KSD Equity, Corporate Debt, Government Debt (Korea Securities Depository) SPAIN SCLV Equity, Corporate Debt (Servicio de Compensacion y Liquidacion de Valores, S.A.) SPAIN CBEO Government Debt (Banco de Espana / Central Book Entry Office) SRI LANKA CDS Equity, Corporate Debt (Central Depository System (Private) Limited) SWEDEN VPC Equity, Corporate Debt, Government Debt (Vardepapperscentralen AB)
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COUNTRY DEPOSITORY INSTRUMENTS ------- ---------- ----------- SWITZERLAND SIS Equity, Corporate Debt, Government Debt (SIS SegaInterSettle AG) TAIWAN TSCD Equity, Government Debt (Taiwan Securities Central Depository Co., Ltd.) THAILAND TSD Equity, Corporate Debt, Government Debt (Thailand Securities Depository Company Limited) TUNISIA STICODEVAM Equity, Corporate Debt, Government Debt (Societe Tunisienne Interprofessionnelle pour la Compensation et le Depot des Valeurs Mobilieres) TURKEY TAKASBANK Equity, Corporate Debt, Government Debt (IMKB Takas ve Saklama Bankasi A.S.) UNITED KINGDOM CREST Equity, Corporate Debt, Government Debt (CRESTCo Limited) UNITED KINGDOM CMO Sterling & Euro CDs, Commercial Paper (Central Moneymarkets Office) UNITED STATES DTC Equity, Corporate Debt (Depository Trust Company) UNITED STATES PTC Mortgage Back Debt (Participants Trust Company) UNITED STATES FED Government Debt (The Federal Reserve Book-Entry System) URUGUAY BCU Corporate Debt, Government Debt (Banco Central del Uruguay) VENEZUELA BCV Government Debt (Banco Central de Venezuela) ZAMBIA CSD Equity, Government Debt (LuSE Central Shares Depository Limited) ZAMBIA BOZ Government Debt (Bank of Zambia)
6 Appendix 1 Information Regarding Country Risk 1. To aid Customer in its determinations regarding Country Risk, Bank shall furnish annually and upon the initial placing of Financial Assets and cash into a country the following information (check items applicable): A Opinions of local counsel concerning: i. Whether applicable foreign law would restrict the access - ---- afforded Customer's independent public accountants to books and records kept by an eligible foreign custodian located in that country. ii. Whether applicable foreign law would restrict the Customer's - ---- ability to recover its Financial Assets and cash in the event of the bankruptcy of an Eligible Foreign Custodian located in that country. iii. Whether applicable foreign law would restrict the Customer's - ---- ability to recover Financial Assets that are lost while under the control of an Eligible Foreign Custodian located in the country. B. Written information concerning: i. The foreseeability of expropriation, nationalization, freezes, - ---- or confiscation of Customer's Financial Assets. ii. Whether difficulties in converting Customer's cash and cash - ---- equivalents to U.S. dollars are reasonably foreseeable.] C. A market report with respect to the following topics: (i) securities regulatory environment, (ii) foreign ownership restrictions, (iii) foreign exchange, (iv) securities settlement and registration, (v) taxation, and (vi) depositories (including depository evaluation), if any. 2. To aid Customer in monitoring Country Risk, Bank shall furnish board the following additional information: Market flashes, including with respect to changes in the information in market reports. Global Custody Agreement - U.S. Law June 2000 version DOMESTIC AND GLOBAL SPECIAL TERMS AND CONDITIONS RIDER Corporate Actions and Proxies through The Depository Trust Company ("DTC") With respect to Financial Assets held at DTC, the following provisions shall apply rather than the pertinent provisions of Sections 2.10-2.11 of the Agreement: Bank shall send to Customer or the Authorized Person for a Custody Account, such proxies (signed in blank, if issued in the name of Bank's nominee or the nominee of a central depository) and communications with respect to Financial Assets in the Custody Account as call for voting or relate to legal proceedings within a reasonable time after sufficient copies are received by Bank for forwarding to its customers. In addition, Bank shall follow coupon payments, redemptions, exchanges or similar matters with respect to Financial Assets in the Custody Account and advise Customer or the Authorized Person for such Account of rights issued, tender offers or any other discretionary rights with respect to such Financial Assets, in each case, of which Bank has received notice from the issuer of the Financial Assets, or as to which notice is published in publications routinely utilized by Bank for this purpose. Global Custody Agreement - U.S. Law May 2000 version RIDER TO GLOBAL CUSTODY AGREEMENT CASH TRADE EXECUTION PRODUCT (UNITED STATES) This Rider to [Global] Custody Agreement (this "Rider") supplements the [Global] Custody Agreement (the "Agreement"), dated ___________, between ________________ ("Customer") and The Chase Manhattan Bank, New York ("Bank"). Capitalized terms in this Rider that are not defined herein have the meaning set forth in the Agreement. Subject to the terms and conditions of this Rider, Bank shall place cash held in Customer's Account(s) as of the applicable cut-off time listed on Schedule A to this Rider ("Schedule A"), which Customer has not notified Bank as being needed to settle pending trades or to effect Customer's cash instructions, into short-term investments (including undivided interests in such investments held in common with other customers of Bank) of the type set forth on Schedule A ("Cash Instruments"). Customer shall remain fully responsible for overdrafts of the Deposit Account or the Custody Account resulting from the placement of cash in a Cash Instrument. The placement of cash into Cash Instruments shall be limited to cash held in the currencies, and shall be subject to the minimum balance requirements, set forth in Schedule A. Bank may enter into Cash Instrument transactions on Customer's behalf with any of the counterparties listed on Schedule B to this Rider ("Schedule B"). Bank may amend Schedules A or B upon notice to Customer, provided that Customer (i) must consent to the addition of any type of instrument to those eligible as Cash Instruments and (ii) may notify Bank from time to time in writing not to use any specified counterparty. Customer's interest in any Cash Instrument shall be an asset of the Accounts and shall be subject to the terms and conditions imposed by the applicable counterparty, local law, or local governmental authorities. Bank shall not perform tax reclaim services with respect to Cash Instruments purchased under this Rider. Cash Instruments are not liabilities of or guaranteed by Bank. Bank shall not be responsible for any losses incurred by Customer in the event of the insolvency or failure of any counterparty with respect to a Cash Instrument. Bank shall be entitled to an administration fee for placing Customer's cash in Cash Instruments, which shall be paid out of interest paid on Customer's undivided interest in the various Cash Instruments. Any interest earnings on Cash Instruments reflected on statements or confirmations shall be net of Bank's administrative fee. Upon request, Bank shall disclose the fees charged with respect to Cash Instruments without charge to Customer. This Rider can be terminated by Bank or Customer upon written notice in the same manner as set forth in the Agreement. In the event of a conflict of the terms hereof and the terms of the Agreement, the terms hereof shall govern. Global Custody Agreement - U.S. Law May 2000 version THE CHASE MANHATTAN BANK CUSTOMER BY: --------------------------------- TITLE: BY: ------------------------------ TITLE: Global Custody Agreement - U.S. Law May 2000 version SCHEDULE A (UNITED STATES CONTRACT) (1) CURRENCIES AND INSTRUMENTS USED FOR CASH TRADE EXECUTION
CURRENCY MINIMUM BALANCE EST CASH SWEEP TIME (SUBJECT TO CHANGE ON NOTICE BY THE BANK) -------- --------------- ----------------------------------- Australian Dollar* NONE 14:00 V-1 Canadian Dollar* NONE 10:30 V Danish Krone NONE 03:00 V Euro* NONE 10:30 V Greek Drachma NONE 01:30 V Hong Kong Dollar* NONE 14:00 V-1 Hungary Florint NONE Japanese Yen* NONE 14:00 V-1 Malaysian Ringgit NONE 08:30 V-1 Mexican Peso NONE 08:30 V New Zealand Dollar* NONE 09:30 V-1 Norwegian Krone NONE 03:00 V Pound Sterling* NONE 10:30 V Singapore Dollar NONE 14:00 V-1 South African Rand NONE 01:30 V Swedish Krona NONE 03:00 V Swiss Franc* NONE 05:00 V Turkish Lira NONE 01:30 V US Dollar* NONE 14:00 V
*Standard IB Currency Cash Instruments:
CASH INSTRUMENT MAXIMUM MATURITY Demand Deposit Overnight Time Deposit (including CDs) 3 months Repurchase Agreement (2) Overnight
Global Custody Agreement - U.S. Law May 2000 version SCHEDULE A (UNITED STATES CONTRACT) (1) (CONTINUED) CURRENCIES AND INSTRUMENTS USED FOR CASH TRADE EXECUTION Effective Date: ----------------------------------- Initials (Required only for revisions adding types of eligible Cash Instruments) The Company (3): ----------------------------------- The Bank: ----------------------------------- (1) Subject to change on notice by the Bank, except that the Customer must consent to the addition of any eligible Cash Instrument. (2) Repurchase agreements will be secured by collateral that is deemed acceptable to the Bank*. The value of the instruments collateralizing the repurchase agreement shall be at least equal to the resale price multiplied by at least 102%, measured at the time into which the repurchase agreement is entered. (3) Company's initials required only for initial version of this Schedule and additions of eligible Cash Instruments. * BILLS, BONDS OR NOTES ISSUED BY THE UNITED STATES TREASURY, OR OTHER SECURITIES GUARANTEED AS TO PRINCIPAL AND INTEREST BY THE GOVERNMENT OF THE UNITED STATES, ITS AGENCIES, INSTRUMENTALITIES OR ESTABLISHMENTS; MORTGAGE-BACKED SECURITIES SPONSORED BY AGENCIES OF THE GOVERNMENT OF THE UNITED STATES; CORPORATE OBLIGATIONS OF DOMESTIC AND FOREIGN ISSUERS WITH A MINIMUM RATING OF AA BY STANDARD & POOR'S CORPORATION ("S&P") OR Aa BY MOODY'S INVESTOR SERVICES, INC. ("MOODY'S"); ASSET-BACKED SECURITIES WITH A MINIMUM RATING OF AAA BY S&P OR Aaa BY MOODY'S; OR MONEY MARKET INSTRUMENTS (INCLUDING, BUT NOT LIMITED TO, CERTIFICATES OF DEPOSIT, BANK NOTES, DEPOSIT NOTES, BANKERS' ACCEPTANCES AND COMMERCIAL PAPER ISSUED BY DOMESTIC ISSUERS WITH A MINIMUM RATING OF A-1 BY S&P AND P-1 BY MOODY'S), AND SOVEREIGN BONDS OF EMU COUNTRIES REPRESENTING THE FULL FAITH AND CREDIT OF THE ISSUING COUNTRY, INCLUDING BONDS ISSUED BY THE IBRD AND EBRD. Global Custody Agreement - U.S. Law May 2000 version SCHEDULE B (UNITED STATES CONTRACT) (4) COUNTERPARTY LIST
AGENT BANKS OTHER ISSUERS ----------- ------------- ABN AMRO Bank N.V. Abbey National plc Allied Irish Banks, p.l.c. Abbey National Treasury Services Plc. Banco Comercial Portugues, S.A. Australia and New Zealand Banking Group Limited Banco Espirito Santo e Comercial de Lisboa SA Banco Bilbao Vizcaya Argentaria, S.A. Banco Santander Central Hispano, S.A. Bank of America, National Association Bank Austria AG Bank of Montreal Bank of Bermuda Ltd. Bank of New York Bank of Ireland Bank of Scotland Bank of Tokyo Mitsubishi Ltd. Banque et Caisse D'Epargne de L'Etat (BCEE) Bank One N.A. Banque Nationale de Paris Banque Bruxelles Lambert S.A. Bayerische Hypo-und Vereinsbank AG Banque Generale du Luxembourg S.A. Bayerische Landesbank GZ Barclays Bank PLC Caisse des Depots et Consignations Canadian Imperial Bank of Commerce (CIBC) Comerica Bank (MI) Chase Manhattan Bank Commerzbank AG Chase Manhattan Bank CMB S.A. Commonwealth Bank of Australia Ltd. Chase Manhattan Bank Malaysia Berhad Credit Communal de Belgique SA Citibank, N.A. Credit Commercial de France Citibank Budapest Rt. First Union National Bank Citibank Mexico, S.A. Fleet National Bank Credit Agricole Indosuez Halifax plc Credit Suisse HSBC Bank PLC Den Danske Bank Aktieselskab KBC Bank N.V. Den norske Bank ASA Keybank, National Association Deutsche Bank AG Landesbank Baden-Wuerttemberg Dresdner Bank AG LaSalle National Bank Fortis Banque S.A. Lloyds TSB Bank Plc. Hong Kong & Shanghai Banking Corporation Limited National Australia Bank Limited HSBC Bank Malaysia Berhad National City Bank ING Bank N.V. National Westminster Bank PLC Merita Bank plc Nationwide Building Society National Nominees Ltd. (parent: National Australia Bank) Norddeutsche Landesbank Girozentrale Paribas Norwest Bank Minnesota National Association Royal Bank of Canada PNC Bank National Association Skandinaviska Enskilda Banken AB Rabobank Nederland N.V. Societe Generale Royal Bank of Scotland plc Standard Chartered Bank plc Sanwa Bank Ltd. Svenska Handelsbanken AB Societe Generale Australia Limited The Standard Bank of South Africa Limited SunTrust Bank, Atlanta UBS AG Toronto-Dominion Bank Ltd. Westpac Banking Corporation Unibank A/S Unicredito Italiano S.P.A. Wachovia Bank National Association Westdeutsche Landesbank Girozentrale
(4) Subject to change on notice by the Bank, except that the Customer may direct the Bank in writing not to enter into Cash Instrument transactions with specified counterparties. Global Custody Agreement - U.S. Law May 2000 version SCHEDULE B (UNITED STATES CONTRACT) (4) COUNTERPARTY LIST (CONTINUED) REVERSE REPURCHASE AGREEMENT COUNTERPARTIES (5) ABN AMRO Bank N.V. ABN AMRO Inc. Bear Stearns and Company Inc. Chase Manhattan Bank Credit Suisse First Boston Deutsche Bank AG Deutsche Bank Securities Donaldson, Lufkin, & Jenrette, Inc. Goldman Sachs Asia Limited Goldman Sachs & Co. Goldman Sachs International Limited Lehman Brothers Inc. Lehman Brothers Holdings International Merrill Lynch (Asia Pacific) Limited Merrill Lynch Government Securities Inc. Merrill Lynch International Limited Merrill Lynch Pierce, Fenner, and Smith Morgan Stanley Asia Limited Morgan Stanley & Co. Inc. Morgan Stanley International Limited Paine Webber Group Inc. Paine Webber International (UK) Ltd. Paine Webber Intl. (Asia) Limited Salomon Smith Barney Hong Kong Limited Salomon Smith Barney Inc. Salomon Smith Barney Intl. Ltd. (London) (4) Subject to change on notice by the Bank, except that the Customer may direct the Bank in writing not to enter into Cash Instrument transactions with specified counterparties. (5) Securities purchased under reverse repurchase agreements may be held with other custodial banks under tri-party arrangements. Global Custody Agreement - U.S. Law May 2000 version SCHEDULE C (UNITED STATES CONTRACT) INVESTMENT GUIDELINES OBJECTIVE: The Customer's Account will be managed to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity by investing in Cash Instruments as set forth in Schedule A with any of the counterparties listed in Schedule B. Global Custody Agreement - U.S. Law May 2000 version 233273:v01 FEE SCHEDULE THE COLUMBIA FUNDS This letter describes The Chase Manhattan Bank's compensation under the fee schedule with an effective dates as of November, 1997.
COUNTRY CUSTODY FEE TRANSACTION CHARGE ------- ----------- ------------------ Argentina 30.0 $125 Australia 6.0 $60 Austria 6.0 $60 Bangladesh 50.0 $200 Belgium 6.0 $60 Bermuda 20.0 $80 Botswana 60.0 $200 Brazil 30.0 $30 Canada 4.0 $40 Chile 50.0 $150 China 25.0 $150 Colombia 50.0 $150 Croatia 50.0 $150 Cote d'lvoire 60.0 $200 Cyprus 50.0 $150 Czech Republic 50.0 $150 Denmark 6.0 $60 ECU 6.0 $60 Egypt 60.0 $200 Estonia 50.0 $150 Eurobonds/Euroclear 3.0 $30 Finland 8.0 $60 France 8.0 $60 Germany 5.0 $50 Ghana 60.0 $200 Greece 50.0 $150 Hong Kong 10.0 $70 Hungary 50.0 $200 India 60.0 $250 Indonesia 15.0 $80 Ireland 6.0 $60 Israel 30.0 $100 Italy 8.0 $60
Global Custody Agreement - U.S. Law May 2000 version 233273:v04 FEE SCHEDULE (Continued) Columbia Funds Jamaica 15.0 $80 Japan 4.00 $35 Jordan 50.0 $200 Kenya 60.0 $200 Luxembourg 6.0 $60 Malaysia 10.0 $80 Mauritius 60.0 $200 Mexico 12.0 $80 Morocco 60.0 $200 Namibia 60.0 $200 Netherlands 6.0 $60 New Zealand 6.0 $60 Norway 6.0 $60 Pakistan 30.0 $150 Papua New Guinea 12.0 $100 Peru 50.0 $150 Philippines 15.0 $80 Poland 50.0 $150 Portugal 10.0 $90 Russia 100.0 $250 Singapore 12.0 $80 Slovak Republic 50.0 $150 Slovenia 50.0 $150 South Africa 12.0 $80 South Korea 30.0 $100 Spain 6.0 $60 Sri Lanka 25.0 $100 Swaziland 60.0 $200 Sweden 6.0 $60 Switzerland 6.0 $60 Taiwan 20.0 $100 Thailand 15.0 $100 Tunisia 60.0 $200 Turkey 20.0 $100 UK Equity 5.00 $40 UK CGO 5.00 $40 UK CMO 5.00 $40 United States 2.00 $20 Uruguay 60.0 $150
Global Custody Agreement - U.S. Law May 2000 version 233273:v04 FEE SCHEDULE (CONTINUED) COLUMBIA FUNDS Venezuela 50.0 $150 Zambia 60.0 $200 Zimbabwe 60.0 $20 Other (US Hearsay) 0.0 $0
SIGNED ON BEHALF OF THE CHASE MANHATTAN BANK BY: --------------------------------------- SIGNATURE: DATE: --------------------------------- ----------------- SIGNED ON BEHALF OF COLUMBIA FUNDS BY: --------------------------------------- SIGNATURE: DATE: --------------------------------- ----------------- Global Custody Agreement - U.S. Law May 2000 version 233273:v04 EX-99.J 5 f78948ex99-j.txt CONSENT OF INDEPENDENT ACCOUNTANTS DATED 2/25/02 Exhibit j CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Post Effective Amendment No. 19 to the Registration Statement on Form N-1A (File No. 2-99207) (Registration Statement) of our report dated February 8, 2002, relating to the financial statements and financial highlights which appear in the December 31, 2001 Annual Report to Shareholders of Columbia Special Fund, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Accounting Services," "Financial Statements" and "Financial Highlights" in such Registration Statement. PricewaterhouseCoopers LLP Portland, Oregon February 25, 2002 EX-99.P 6 f78948ex99-p.txt CODE OF ETHICS EFFECTIVE: AUGUST 1, 2001 Exhibit p CODE OF ETHICS EFFECTIVE: AUGUST 1, 2001 THE FOLLOWING CODE OF ETHICS (THE "CODE") IS DESIGNED TO COMPLY WITH SECTION 17(J) OF THE INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT") AND THE INSIDER TRADING AND SECURITIES FRAUD ENFORCEMENT ACT OF 1988 AND HAS BEEN ADOPTED BY COLUMBIA MANAGEMENT CO., COLUMBIA FUNDS MANAGEMENT COMPANY, COLUMBIA TRUST COMPANY, COLUMBIA FINANCIAL CENTER INCORPORATED, AND CMC FUND TRUST AND EACH INVESTMENT COMPANY MANAGED BY COLUMBIA FUNDS MANAGEMENT COMPANY (COLLECTIVELY, "COLUMBIA"). EACH PORTFOLIO OF CMC FUND TRUST AND EACH INVESTMENT COMPANY MANAGED BY COLUMBIA FUNDS MANAGEMENT COMPANY ARE REFERRED TO IN THIS CODE AS A "COLUMBIA FUND." 1. STATEMENT OF GENERAL PRINCIPLES The specific standards and guidelines set forth in the Code must be applied and followed in the context of the following general fiduciary principles that govern personal investment activities. The Code is based on the principle that officers, directors and employees of Columbia owe a fiduciary duty to conduct their personal securities transactions in a manner that does not interfere with portfolio transactions or take unfair advantage of their relationship with Columbia. This fiduciary duty is owed to both Columbia advisory clients and shareholders of the Columbia Funds. Columbia personnel must adhere to this general principle as well as the specific requirements set forth in this Code. Columbia officers, directors and employees should understand, however, that technical compliance with the specific requirements of the Code does not automatically insulate them from liability or a review of trades that show a pattern of a breach of an individual's fiduciary duty. Personnel should avoid situations that present actual as well as potential conflicts of interest. As a general principle, it is imperative that Columbia's officers, directors and employees also avoid any situation that might compromise or call into question their exercise of independent judgment in the interest of Columbia Fund shareholders and Columbia advisory clients. Areas of concerns relating to independent judgment include, among others, unusual investment opportunities, perks, and gifts of more than "de minimus" value from persons doing or seeking to do business with Columbia. Purchases or sales of securities shall be made only in accordance with this Code and Columbia's Policy and Procedures Designed to Detect and Prevent Insider Trading (the "Insider Trading Policy"). Although all employees and disinterested directors/trustees of Columbia are covered by this Code and the Insider Trading Policy, certain employees deemed under the Code to be "access persons" are subject to greater trading restrictions and reporting obligations. Disinterested directors/trustees, however, are generally subject to fewer trading restrictions and reporting obligations because of their limited access to current investment information. 2. DEFINITIONS (a) "Access person" means (i) any director or officer of Columbia, (ii) any employee of Columbia who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by Columbia or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (iii) any natural person in a control relationship to Columbia who obtains information concerning recommendations made to Columbia with regard to the purchase or sale of a security. The Ethics Committee shall maintain a list of employees deemed to be access persons for purposes of this Code. "Access person" does not include a disinterested director/trustee of a Columbia Fund. (b) A security is "being considered for purchase or sale" when a recommendation to purchase or sell a security has been made and communicated or, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. (c) "Beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, which states that the term "beneficial owner" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in" a security. The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." "Beneficial ownership" includes accounts of a spouse, minor children and relatives resident in the home of the access person, as well as accounts of another person if the employee obtains therefrom benefits substantially equivalent to those of ownership. For additional information, see appendix A. (d) "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act. (e) "Disinterested director/trustee" means a director/trustee of a Columbia Fund who is not an "interested person" of the Columbia Fund within the meaning of Section 2(a)(19) of the 1940 Act. (f) "Employee" means any employee or officer of Columbia or any Columbia Fund. Employee does not include a disinterested director/trustee of a Columbia Fund. (g) "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security. (h) "Security" shall have the meaning set forth in Section 2(a)(36) of the Investment Company Act, except that it shall not include shares of registered open-end investment companies, securities issued by the U.S. Government or an instrumentality thereof, short-term debt securities that are government securities within the meaning of Section 2(a)(16) of the 1940 Act, bankers' acceptances, bank certificates of deposit, commercial paper and other money market instruments. Any prohibition or reporting obligation relating to a security shall also apply to any option, warrant or right to purchase or sell such security and to any security convertible or exchangeable for such security. 3. PRE-CLEARANCE OF TRANSACTIONS All access persons shall have all purchases or sales of any security in which they have, or by reason of such purchase acquire, any direct or indirect beneficial ownership approved in writing by 2 the Columbia Trading Department or a member of the Ethics Committee prior to effecting the transaction. Members of the Ethics Committee are attached hereto as Appendix B. NOTE: See the definition of security in Section 2(h) and the exemptions in Section 5 to determine whether a transaction is subject to the pre-clearance requirement. For example, transactions in an account over which an employee does not have direct or indirect influence or control are exempt from this pre-clearance requirement. 4. Prohibited Transactions (a) General Restrictions: (i) PROHIBITED PURCHASES AND SALES. No employee or disinterested director/trustee shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transactions acquires, any direct or indirect beneficial ownership and which to his or her knowledge at the time of such purchase or sale (i) is being considered for purchase or sale by Columbia or (ii) is being purchased or sold by Columbia. In addition, all employees and disinterested directors/trustees shall comply with the Insider Trading Policy, which prohibits any person from purchasing or selling a security while in possession of material non-public information or communicating such information in connection with a transaction. (ii) INITIAL PUBLIC OFFERINGS. No employee shall purchase or sell directly or indirectly, any equity security issued in an initial public offering without the written approval by the Columbia Trading Department or a member of the Ethics Committee prior to the transaction. A transaction by an access person in an initial public offering will not be approved in any circumstances. (b) Restrictions Applicable only to Access Persons: (i) PRIVATE PLACEMENTS. No access person shall purchase any securities issued in a private placement (as that term is generally recognized as an exempt transaction from registration under the federal securities laws) except pursuant to the prior written approval of the Ethics Committee, which approval shall take into consideration, among other factors, whether the investment opportunity should be reserved for a Columbia Fund or Columbia advisory client and whether the opportunity is being offered to the access person by virtue of his or her position with Columbia. In addition, any access person who owns or has been authorized to acquire securities in a private placement is required to disclose that ownership if he or she plays a material role in Columbia's subsequent investment decision regarding the same issuer of the security. In that circumstance, Columbia's decision to purchase such securities must be subject to an independent review by members of the Columbia Investment Team with no personal interest in the issuer. (ii) 7-DAY BLACKOUT PERIOD. No access person shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of the transaction acquires, any direct or indirect beneficial ownership within a period of seven calendar days before and after a purchase or sale by a Columbia Fund or advisory client over which the access person 3 exercises investment discretion. For example, if a Columbia Fund trades a security on day one (e.g., on Monday), the access person may not trade until day nine (e.g., the following Tuesday). Any profits realized on trades within the proscribed periods shall be disgorged to Columbia for the benefit of the appropriate Columbia Fund or advisory client or, alternatively, to a charitable organization (qualified under Section 501(c) of the Internal Revenue Code) of the access person's choice. The black-out period restriction under this Section 4(b)(ii) should not operate to the detriment of any Columbia Fund or advisory client. Therefore, if an access person has executed a transaction in a security for his or her account and within seven days thereafter desires to purchase or sell that security for a Columbia Fund or advisory client over which he or she exercises investment discretion, the access person shall submit a written explanation to the Trading Desk or Ethics Committee describing the circumstances relating to the decision to trade the security for the Fund or client account. Based on the specific circumstances and a determination that the access person has not otherwise violated the Code of Ethics, including the Statement of General Principles in Section 1, the Trading Desk or Ethics Committee may approve the trade by the Fund or advisory client and, in that case, the prior personal transaction by the access person shall not be considered a violation of the seven day black-out period restriction. A written record of the approval by the Trading Desk or the Ethics Committee, as the case may be, shall be maintained by the Ethics Committee. (iii) SHORT-TERM TRADING. For the purpose of preventing the unfair use of information that may be obtained by an access person, any profit realized by an access person from any purchase and sale, or any sale and purchase, of any security in which he or she has, or by reason of the transaction acquires, any direct or indirect beneficial ownership (other than an exempted security under this Code), within any period of 60 days or less based on a first-in, first-out accounting method shall inure to and be recoverable by Columbia for the benefit of a charitable organization (qualified under Section 501(c) of the Internal Revenue Code) of the access person's choice. This prohibition shall not apply unless such access person was the beneficial owner of the security or of an interest in the security both at the time of the purchase and sale, or sale and purchase. Exceptions to the short-term trading ban may be approved in advance by the Ethics Committee where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. Circumstances that could provide the basis for an exception under this paragraph may include for example, among other things, an involuntary transaction that is the result of unforeseen corporate activity, the disclosure of a previously nonpublic, material corporate, economic or political event or activity that could cause a reasonable person in like circumstances to sell a security even if originally purchased as a long term investment, or the access person's economic circumstances materially change in such a manner that enforcement of the short-term trading ban would cause an extreme hardship on the access person. (iv) EXEMPTION FOR LARGE CAP TRADES. The prohibitions in subsections 4(b)(ii) and (iii) shall not apply to the purchase or sale by the access person of a security issued by a company with a market capitalization greater than $10 billion if the number of shares in the transaction is less than 1% of the average daily trading volume for the security for the 20-day trading period immediately prior to the transaction. This exception to the black-out period 4 and short-term trading prohibitions recognizes that transactions by the access person or Columbia involving securities of companies with large market capitalizations and high average daily trading volumes are not likely to materially affect the price of the security involved. 5. EXEMPTED TRANSACTIONS In addition to any other exemptions in this Code and except as otherwise noted below, the prohibitions of Section 4 and the pre-clearance required by Section 3 of this Code shall not apply to: (a) Purchases or sales effected in any account over which the employee has no direct or indirect influence or control. Pre-approval of these accounts may, at times, be required by the Ethics Committee. For additional information see appendix A. (b) Purchases or sales of securities that are not eligible for purchase or sale by Columbia. (c) Purchases or sales which are non-volitional on the part of either the employee, or Columbia. (d) Purchases which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. (f) Transactions in options on and securities based on the indices listed in Appendix C, which may be amended from time to time by the unanimous vote of the Ethics Committee. (g) Purchases and sales approved by the Ethics Committee if it is determined after appropriate inquiry that the transaction is not potentially harmful to a Columbia Fund or advisory client because it would be very unlikely to affect a highly institutional market, or because it clearly is not related economically to the securities to be purchased, sold or held by Columbia, and that the purchase or sale does not violate the Insider Trading and Securities Fraud Enforcement Act of 1988. 6. PROHIBITED ACTIVITIES BY EMPLOYEES AND ACCESS PERSONS (a) GIFTS. Employees are prohibited from receiving, either directly or indirectly, anything of value in excess of a "de minimus" amount from any person or any employee of an entity that does or seeks to do business with Columbia. (b) SERVICE AS A DIRECTOR. Access persons are prohibited from serving on the boards of directors of publicly traded companies, absent a prior authorization from the Ethics Committee based on a determination that the board service would not be inconsistent with the interests of Columbia or Columbia's advisory clients. This restriction shall not apply to access persons serving on the board of directors or as a trustee of any Columbia Fund. 7. REPORTING 7/01 5 (a) DUPLICATE CONFIRMATIONS AND ACCOUNT STATEMENTS. All access persons shall cause every broker with whom he or she maintains an account to provide duplicate confirmations to Columbia for all securities transactions by the access person. The Trading Department shall compile summaries of all trades entered and all transactions completed. Such reports shall include the name of the security, date of transaction, quantity, price and the broker-dealer through which the transaction was effected. The obligation to provide duplicate confirmations and account statements applies to all brokerage accounts even if a transaction is exempt from the prohibitions under this Code. In addition, all access persons (excluding disinterested directors/trustees) shall cause every such broker to send all monthly, quarterly and annual statements of their accounts to Columbia. The quarterly statements must be provided no later than 10 days after the end of a calendar quarter. The quarterly statements must contain with respect to any transaction during the calendar quarter in a security beneficially owned by the access person (1) the date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each security involved; (2) the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (3) the price of the security at which the transaction was effected; (4) the name of the broker, dealer or bank with or through which the transaction was effected; and (5) the date that the report is submitted by the access person. (b) DISCLOSURE OF ALL PERSONAL HOLDINGS. Within 10 days of commencement of employment or becoming an access person and on an annual basis thereafter (which information must be current as of a date no more than 30 days before the report is submitted), each access person shall provide or cause its broker(s) to provide Columbia the following information: (1) the title, number of shares and principal amount of each security beneficially owned by the access person; (2) the name of any broker, dealer or bank from whom the access person maintains an account in which any securities were beneficially owned by the access person; and (3) the date the report is submitted by the access person. (c) DISINTERESTED DIRECTOR/TRUSTEE. A disinterested director/trustee is required to report a purchase or sale transaction in a security only if the disinterested director/trustee, at the time of the transaction, knew or, in the ordinary course of fulfilling his or her duties as a director/trustee of a Columbia Fund, should have known that, during the 15-day period immediately preceding or after the date of the transaction, such security is or was purchased or sold by the Columbia Fund or is or was being considered for purchase or sale. (d) REVIEW OF SECURITIES TRANSACTIONS AND HOLDING REPORTS. Columbia shall maintain procedures to ensure that all securities transactions and holdings reports submitted by employees and access persons are reviewed by appropriate management or compliance personnel. 8. CERTIFICATION OF COMPLIANCE All employees and disinterested directors/trustees shall certify annually, and access persons shall certify on a quarterly basis, that they have read and understood the Code and are subject thereto, have complied with the requirements of the Code and have disclosed or reported all personal securities transactions as required by the Code. 7/01 6 9. SANCTIONS Upon discovering a violation of this Code, Columbia may impose such sanctions as it deems appropriate, including, among other things, a letter of censure or suspension or termination of the employment of the violator. 10. REPORT TO THE BOARD OF DIRECTORS. On an annual basis, the Ethics Committee shall prepare a written report to the management of Columbia and the Boards of Directors/Trustees of the Columbia Funds and the other Columbia companies that (1) describes any issues arising under the Code since the last report including, but not limited to, information about material violations of the Code and sanctions imposed in response to the material violations; and (2) certifies that Columbia has adopted procedures reasonably necessary to prevent violations of the Code. Columbia shall present any material change to the Code to the Board of Directors/Trustees no later than six months after adoption of the material change. 7/01 7 APPENDIX A - BENEFICIAL OWNERSHIP For purposes of the Code of Ethics, the term "beneficial ownership" shall be interpreted in accordance with the definition of "beneficial owner" set forth in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which states that the term "beneficial owner" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in" a security. The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." The pecuniary interest standard looks beyond the record owner of securities. As a result, the definition of beneficial ownership is extremely broad and encompasses many situations which might not ordinarily be thought to confer a "pecuniary interest" in or "beneficial ownership" of securities. SECURITIES DEEMED TO BE "BENEFICIALLY OWNED" Securities owned "beneficially" would include not only securities held by you for your own benefit, but also securities held (regardless of whether or how they are registered) by others for your benefit in an account over which you have influence or control, such as, for example, securities held for you by custodians, brokers, relatives, executors, administrators, or trustees. The term also includes securities held for your account by pledgees, securities owned by a partnership in which you are a general partner, and securities owned by any corporation that you control. Set forth below are some examples of how beneficial ownership may arise in different contexts. FAMILY HOLDINGS. Securities held by members of your immediate family sharing the same household are presumed to be beneficially owned by you. Your "immediate family" includes any child, step-child, grandchild, parent, step-parent, grandparent, spouse, significant other, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews). The definition also includes adoptive relationships. You may also be deemed to be the beneficial owner of securities held by an immediate family member not living in your household if the family member is economically dependent upon you. PARTNERSHIP AND CORPORATE HOLDINGS. A general partner of a general or limited partnership will generally be deemed to beneficially own securities held by the partnership, as long as the partner has direct or indirect influence or control over the management and affairs of the partnership. A limited partner will generally not be deemed to beneficially own securities held by a limited partnership, provided he or she does not own a controlling voting interest in the partnership. If a corporation is your "alter ego" or "personal holding company", the corporation's holdings of securities are attributable to you. TRUSTS. Securities held by a trust of which you are a beneficiary and over which you have any direct or indirect influence or control would be deemed to be beneficially owned by you. An example would be where you as settlor have the power to revoke the trust without the consent of another person, or have or share investment control over the trust. 7/01 8 ESTATES. Ordinarily, the term "beneficial ownership" would not include securities held by executors or administrators in estates in which you are a legatee or beneficiary unless there is a specific bequest to you of such securities, or you are the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such bequest. SECURITIES DEEMED NOT TO BE "BENEFICIALLY OWNED" For purposes of the Code of Ethics, the term "beneficial ownership" excludes securities or securities accounts held by you for the benefit of someone else if you do not have a pecuniary interest in such securities or accounts. For example, securities held by a trust would not be considered beneficially owned by you if neither you nor an immediate family member is a beneficiary of the trust. Another example illustrating the absence of pecuniary interest, and therefore also of beneficial ownership, would be securities held by an immediate family member not living in the same household with you, and who is not economically dependent upon you. "INFLUENCE OR CONTROL" Transactions over which you have "no direct or indirect influence or control" are not subject to the pre-clearance requirements or prohibited transaction rules in Sections 3 and 4 of the Code of Ethics. See Section 5(a). To have "influence or control", you must have an ability to prompt, induce or otherwise affect transactions in the account. Like "beneficial ownership, the concept of influence or control encompasses a wide variety of factual situations. An example of where influence or control exists would be where you, as a beneficiary of a revocable trust, have significant ongoing business and social relationships with the trustee of the trust. Examples of where influence or control does not exist would be a true blind trust, or securities held by a limited partnership in which your only participation is as a non-controlling limited partner. The determining factor in each case will be whether you have any direct or indirect influence or control over the securities account. Access persons with such blind trust or third party discretionary accounts shall have their account agreement and/or governing documents forwarded to Ethics Committee for review prior to trading pursuant to this exemption. The account will only be exempt if the access person initially, and on an annual basis thereafter, certifies that he or she maintains no control or influence over the account. 7/01 9 APPENDIX B - MEMBERS OF ETHICS COMMITTEE Thomas L. Thomsen Alexander S. Macmillan Jeff B. Curtis Mark A. Wentzien Rich S. Mettler Thomas F. Biesiadecki 7/01 10 APPENDIX C S&P 500 Index S&P Mid Cap 400 Index S&P 100 Index NASDAQ 100 Dow Jones 7/01 11 -----END PRIVACY-ENHANCED MESSAGE-----